Mr. Stewart Emerson reports

SUPREMEX ANNOUNCES Q4 AND YEAR-END 2023 RESULTS AND INCREASES DIVIDEND

Supremex Inc. has released its results for the fourth quarter and fiscal year ended Dec. 31, 2023. The company will hold a conference call to discuss these results today at 10 a.m. (Eastern Time).

Fourth quarter financial highlights and recent events:

• Total revenue of $72.3-million, compared with $78.8-million in the fourth quarter of 2022.
• Envelope segment revenue of $50.6-million, down from $60.7-million in the fourth quarter of 2022.
• Packaging and specialty products segment revenue increased 20.2 per cent to $21.7-million, from $18.1-million last year.
• Net earnings were $700,000, compared with $6.7-million in the fourth quarter of 2022.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $9-million, or 12.4 per cent of revenue, versus $15.3-million, or 19.5 per cent of revenue, last year.
• Earnings per share were three cents, versus 26 cents in the fourth quarter of 2022.
• Solid free cash flow at $15.1-million, compared with $10.2-million in the fourth quarter of 2022.
• Departure of the president of the packaging and specialty products segment on Oct. 17, 2023.
• On Feb. 21, 2024, the board of directors declared an increased quarterly dividend of four cents per common share, payable on April 5, 2024, to shareholders of record at the close of business on March 21, 2024.

"After a record 2022, calendar 2023 has been challenging for Supremex as a result of the slower-than-expected pace at which the industries we serve have been recovering, and to a lesser extent, operational inefficiencies in previous quarters after relocating certain packaging operations," said Stewart Emerson, president and chief executive officer of Supremex. "While the sales landscape continues to improve, market conditions remain very weak. That said, Supremex enters 2024 with solid operating teams in both business segments after its third quarter packaging segment reorganization. In envelopes, we will continue to nurture the Canadian market while driving expansion in the U.S. On the packaging side, the combination of improved efficiency and quality of execution should enable us to resume positive momentum. Given our solid cash flow and healthy balance sheet, we remain well positioned to take advantage of growth opportunities, while continuing to methodically pay down debt, repurchase shares and pay increased dividends."

Summary of three-month period ended Dec. 31, 2023

Revenue

Total revenue for the three-month period ended Dec. 31, 2023, was $72.3-million, representing a decrease of $6.5-million, or 8.2 per cent, from the equivalent quarter of 2022.

Envelope segment

Revenue was $50.6-million, down from $60.7-million in the equivalent quarter of 2022. The decrease reflects the lower volume of units sold following last year's over-ordering in a time of tight supply and the effects of higher interest rates and inflation on market demand, and an average selling price decrease of 1.7 per cent from last year's fourth quarter. These factors were partially offset by a contribution of $11.1-million from Royal Envelope Corp. for the entire period, compared with $9.7-million over two months in 2022. The envelope segment represented 69.9 per cent of total revenue in the quarter, versus 77.1 per cent during the equivalent period of last year.

Packaging and specialty products segment

Revenue was $21.7-million, up from $18.1-million in the corresponding quarter of 2022. The increase reflects a $6.6-million contribution from Paragraph and the integration of the Graf-Pak activities into pre-existing operations. These factors were partially offset by lower demand from certain sectors more closely correlated to economic conditions and by the effect on sales from closing the St-Hyacinthe facility and transferring production to other packaging facilities, as well as from divesting of non-core orders. Packaging and specialty products represented 30.1 per cent of total revenue in the quarter, compared with 22.9 per cent during the equivalent period of last year.

EBITDA and adjusted EBITDA

EBITDA was $6.9-million, down from $13.7-million in the fourth quarter last year. Adjusted EBITDA amounted to $9-million, compared with $15.3-million in the fourth quarter of 2022. This decrease reflects lower revenue and higher operating expenses, partially offset by lower selling, general and administrative expenses, as detailed above. The adjusted EBITDA margin reached 12.4 per cent of revenue, compared with 19.5 per cent in the equivalent quarter of 2022.

Envelope segment

Adjusted EBITDA was $8.7-million, down from $14.9-million in the fourth quarter of 2022. This decrease mainly reflects a lower volume of units sold following last year's over-ordering in a time of tight supply, which negatively impacted the absorption of fixed costs. As a percentage of segmented revenue, adjusted EBITDA from the envelope segment was 17.2 per cent, compared with 24.5 per cent in the equivalent period of 2022.

Packaging and specialty products segment

Adjusted EBITDA was $1.3-million, compared with $3.9-million in the fourth quarter of 2022. This decrease is mainly explained by lower demand from certain sectors more closely correlated to economic conditions, which negatively impacted the absorption of fixed costs. As a percentage of segmented revenue, adjusted EBITDA from the packaging and specialty operations was 6.1 per cent, compared with 21.6 per cent in the equivalent period of 2022.

Corporate and unallocated recovery/costs

The corporate and unallocated costs were $1-million compared with $3.5-million in the fourth quarter of 2022. This decrease is attributable to a favourable adjustment to the deferred share units (DSUs) and performance share units (PSUs) during the quarter and lower provisions for performance-based remuneration.

Net earnings, adjusted net earnings, net earnings per share and adjusted net earnings per share

Net earnings were $700,000 or three cents per share for the three-month period ended Dec. 31, 2023, compared with $6.7-million or 26 cents per share for the equivalent period last year.

Adjusted net earnings were $2.2-million or nine cents per share for the three-month period ended Dec. 31, 2023, compared with $7.9-million or 31 cents per share for the equivalent period in 2022.

Summary of 12-month period ended Dec. 31, 2023

Revenue

Total revenue for the 12-month period ended Dec. 31, 2023, reached $302.2-million, up $29.7-million, or 10.9 per cent, from $272.5-million for the 12-month period ended Dec. 31, 2022.

Envelope segment

Revenue from the envelope segment was $213.6-million, an increase of $13.2-million, or 6.6 per cent, from $200.3-million in the comparable period of 2022. The increase reflects a contribution of approximately $43.3-million from Royal Envelope over the full year, versus approximately $9.7-million over two months in 2022, an average selling price increase of 21.6 per cent from last year primarily reflecting a more favourable customer and product mix in U.S. operations, as well as price increases to mitigate input cost inflation, and a favourable currency conversion effect. These factors were partially offset by lower volume. The envelope segment represented 70.7 per cent of the company's revenue during the period, compared with 73.5 per cent in the prior year.

Packaging and specialty products segment

Revenue was $88.6-million, up 22.8 per cent from $72.1-million during the 12-month period ended Dec. 31, 2022. The increase reflects a contribution of $29-million from Paragraph, the integration of the Graf-Pak activities into pre-existing operations and higher demand for e-commerce packaging solutions. These factors were partially offset by the wind down of the Durabox operations in 2022, lower demand from certain sectors more closely correlated to the economic conditions and the effect on sales from inefficiencies of consolidating the folding carton operations in Lachine concurrently with integrating acquisitions earlier in the year. Packaging and specialty products represented 29.3 per cent of the company's revenue in 2023, compared with 26.5 per cent in 2022.

EBITDA and adjusted EBITDA

EBITDA amounted to $47.8-million in the 12-month period ended Dec. 31, 2023, compared with $54.8-million in the equivalent period of 2022. Adjusted EBITDA reached $49.1-million in the 12-month period ended Dec. 31, 2023, compared with $56.8-million last year. This decrease is the result of higher operating, selling, general and administrative expenses, partially offset by higher revenue, as detailed above. The adjusted EBITDA margin stood at 16.3 per cent of revenue, compared with 20.9 per cent in the equivalent period of 2022.

Envelope segment

Adjusted EBITDA was $45.1-million, down from $49.9-million last year. This decrease reflects the effect of lower volume on the absorption of fixed costs, partially offset by an increase in the average selling price and a more favourable product mix in U.S. operations. As a percentage of segmented revenue, adjusted EBITDA from the envelope segment was 21.1 per cent, down from 24.9 per cent in the equivalent period of 2022.

Packaging and specialty products segment

Adjusted EBITDA was $8.5-million, down from $15.2-million in the comparable period of 2022. The variation was primarily due to lower demand from certain sectors more closely correlated to economic conditions, which negatively impacted the absorption of fixed costs, and the effect on profitability from inefficiencies of consolidating the folding carton operations in Lachine concurrently with integrating acquisitions earlier in the year. As a percentage of segmented revenue, adjusted EBITDA from the packaging and specialty products segment was 9.6 per cent, compared with 21 per cent in the equivalent period of 2022.

Corporate and unallocated costs

The corporate and unallocated costs amounted to $4.6-million compared with $8.3-million in 2022. The decrease resulted from a favourable adjustment related to DSUs and PSUs, benefits from a retroactive COVID-related subsidy for U.S. operations, as well as lower provisions for performance-based remuneration, partially offset by a foreign exchange loss and severances.

Net earnings, adjusted net earnings, net earnings per share and adjusted net earnings per share

Net earnings were $17.3-million or 67 cents per share for the 12-month period ended Dec. 31, 2023, compared with $28.4-million or $1.09 per share for the equivalent period in 2022.

Adjusted net earnings were $18.3-million or 71 cents per share for the 12-month period ended Dec. 31, 2023, compared with $30-million or $1.15 per share for the equivalent period in 2022.

Liquidity and capital resources

Cash flow

Net cash flows from operating activities were $14.8-million during the three-month period ended Dec. 31, 2023, compared with $11.7-million in the equivalent period of 2022. The increase is mainly attributable to lower working capital requirements, primarily due to a reduction in inventories, partially offset by lower profitability.

Net cash flows from operating activities were $43.9-million during the 12-month period ended Dec. 31, 2023, compared with $26.9-million in 2022. The variation essentially reflects the aforementioned factors.

Free cash flow amounted to $15.1-million in the fourth quarter of 2023, compared with $10.2-million for the same period last year, essentially reflecting higher cash flows related to operating activities and lower net acquisitions of property, plant and equipment.

Free cash flow amounted to $40-million in the 12-month period ended Dec. 31, 2023, compared with $24.4-million in the corresponding period of 2022, mainly attributable to higher cash flows related to operating activities, partially offset by higher net acquisitions of property, plant and equipment.

Normal course issuer bid (NCIB)

During the three- and 12-month periods ended Dec. 31, 2023, the company repurchased 151,200 and 310,800 common shares, respectively, for cancellation through the current and prior NCIB, for total considerations of $600,000 and $1.4-million, respectively.

Subsequent to the end of the period, an additional 255,400 shares were purchased for cancellation for total consideration of $900,000.

Debt and leverage

Total debt reached $56.8-million as at Dec. 31, 2023, compared with $54.7-million as at Dec. 31, 2022. The increase is essentially attributable to the acquisitions of Paragraph and Graf-Pak for considerations of $25.7-million and $5.9-million, respectively, net of cash acquired, partially offset by debt repayment resulting from a solid free cash flow generation.

Dividend declaration

On Feb. 21, 2024, the board of directors declared a quarterly dividend of four cents per common share, payable on April 5, 2024, to the shareholders of record at the close of business on March 21, 2024. This dividend is designated as an eligible dividend for the purpose of the Income Tax Act (Canada) and any similar provincial legislation.

Outlook

Following a challenging market environment year in 2023, the company anticipates demand to gradually return to historical patterns, although the pace of market recovery could be further impacted by persisting high interest rates and inflation. As it continues to expand in the vast and fragmented U.S. envelope market, Supremex will be increasingly subject to competitive pressures, but the company will rely on its solid reputation and geographic reach to stimulate sales while continuing to pro-actively control expenses.

The company remains focused on capturing all sales and cost synergies from recent business acquisitions. As such, the optimization initiatives announced in October, 2023, for the packaging and specialty products segment are expected to yield annual cost savings of approximately $1.5-million once all measures are implemented, while a new management structure will enhance capacity to drive value in each target market and maintain proximity with customers.

With respect to capital deployment, the company will continue to look for strategic acquisitions, mainly in the packaging and specialty products segment, while sustaining capital returns to shareholders.

Feb. 22, 2024 -- year-end results conference call

A conference call to discuss the company's results for the fourth quarter and fiscal year ended Dec. 31, 2023, will be held Thursday, Feb. 22, 2024, 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, please dial the following numbers. The company suggests that participants call in at least five minutes prior to the scheduled start time:

• Confirmation No.: 10022879;
• Local (Vancouver) and international participants, dial: 604-638-5340;
• North American participants, dial toll-free: 1-800-319-4610.

A replay of the conference call will be available on the company's website in the investors section under webcast. To listen to a recording of the conference call, please call toll-free 1-855-669-9658 or 604-674-8052 and enter the code 0624. The recording will be available until Thursday, Feb. 29, 2024.

About Supremex Inc.

Supremex is a leading North American manufacturer and marketer of envelopes and a growing provider of paper-based packaging solutions. Supremex operates 10 manufacturing facilities across four provinces in Canada and six manufacturing facilities in four states in the United States employing approximately 1,000 people. Supremex's growing footprint allows it to efficiently manufacture and distribute envelope and packaging solutions designed to the specifications of major national and multinational corporations, direct mailers, resellers, government entities, small and medium-sized enterprises, and solutions providers.

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