MONTREAL, Feb. 23, 2023 (GLOBE NEWSWIRE) -- Supremex Inc. (“Supremex” or the “Company”) (TSX: SXP), a leading North American manufacturer and marketer of envelopes and a growing provider of paper-based packaging solutions, today announced its results for the fourth quarter and fiscal year ended December 31, 2022. The Company will hold a conference call to discuss these results, today at 10:00 a.m. (Eastern Time).
Fourth Quarter Financial Highlights and Recent Events
- Total revenue increased by 19.0% to $78.8 million, from $66.2 million in the fourth quarter of 2021.
- Envelope segment revenue was up 30.1% to $60.7 million, from $46.7 million in the fourth quarter of 2021.
- Packaging & specialty products segment revenue declined by 7.6% to $18.1 million, from $19.6 million last year, largely as a result of the wind down of Durabox and the relocation of folding carton operations.
- Adjusted EBITDA1 of $15.3 million, or 19.5% of revenue, versus $12.2 million, or 18.5% of revenue, last year.
- Net Earnings increased 36.0% to $6.7 million, from $4.9 million in the fourth quarter of 2021.
- Earnings per share increased to $0.26, up from $0.18 in the fourth quarter of 2021.
- Acquisitions of Royal Envelope Corporation (“Royal Envelope”), on November 1, 2022, and Impression Paragraph Inc. (“Paragraph”), on January 16, 2023.
- On February 22, 2023, the Board of Directors declared a quarterly dividend of $0.035 per common share, representing a 16.7% rise over the previous dividend paid. This represents the second increase, for a cumulative rise of 40.0% since reinstating dividend payments at the beginning of 2022.
Financial Highlights
(in thousands of dollars, except for per share amounts and margins)
| Three-month periods ended December 31 | Twelve-month periods ended December 31 | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Statement of earnings | ||||||||
| Revenue | 78,761 | 66,203 | 272,467 | 226,430 | ||||
| Operating earnings | 10,075 | 6,819 | 40,664 | 23,279 | ||||
| Adjusted EBITDA(1) | 15,332 | 12,218 | 56,841 | 39,042 | ||||
| Adjusted EBITDA margin(1) | 19.5 | % | 18.5 | % | 20.9 | % | 17.2 | % |
| Net earnings | 6,660 | 4,896 | 28,436 | 15,752 | ||||
| Basic and diluted net earnings per share | 0.26 | 0.18 | 1.09 | 0.58 | ||||
| Adjusted net earnings(1) | 7,854 | 6,431 | 29,980 | 17,409 | ||||
| Adjusted net earnings per share(1) | 0.31 | 0.24 | 1.15 | 0.64 | ||||
| Cash Flow | ||||||||
| Net cash flows related to operating activities | 11,739 | 13,821 | 26,914 | 29,996 | ||||
| Free Cash Flow(1) | 10,193 | 12,281 | 24,362 | 26,142 | ||||
| (1) This is a non-IFRS financial measure or ratio. Non-IFRS financial measures do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to the non-IFRS financial measures section for definitions and reconciliations. | ||||||||
“2022 was a banner year for Supremex with strong revenue growth, Adjusted EBITDA margin expansion and a robust cash flow generation despite working capital investments. The fourth quarter was the twelfth consecutive period of year-over-year improvement in Adjusted EBITDA, a significant achievement given the expected disruption caused by the wind down of the Durabox corrugate operations and the relocation of one of our folding carton businesses in the Montreal area. We are pleased that these initiatives were successfully completed according to plan, making Supremex a more efficient and focused player in the growing specialty packaging market,” said Stewart Emerson, President & CEO of Supremex.
“For 2023, our focus will be on integrating recent acquisitions with a priority on capturing all sales and cost synergies. In Envelope, Royal Envelope provides additional capacity as well as an expansion of our addressable market and geographical reaches in the fragmented U.S. market. As for our Packaging operations, Paragraph brings critical mass and provides Supremex with an enhanced offering of folding carton and complimentary solutions for our core pharmaceutical, health & beauty, home food and e-commerce markets.” concluded Mr. Emerson.
Non-IFRS Financial Measures
Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies and should not be viewed as alternatives to measures of financial performance prepared in accordance with IFRS. Management considers these metrics to be information which may assist investors in evaluating the Company’s profitability and enable better comparability of the results from one period to another.
These Non-IFRS Financial Measures are defined as follows:
| 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. Management believes this non-IFRS measure, provides users with an enhanced understanding of its operating earnings. |
| Adjusted EBITDA | Adjusted EBITDA represents EBITDA adjusted to remove items of significance that are not in the normal course of operations. These items of significance include, when applicable, but are not limited to, charges for impairment of assets, restructuring expenses, value adjustment on inventory acquired and business acquisition costs. The Company uses Adjusted EBITDA to assess its operating performance, excluding items that are not in the normal course of operations. Management believes this non-IFRS measure, provides users with enhanced understanding of the Company’s operating earnings and increase the transparency and clarity of the Company’s core results. It also allows users to better evaluate the Company’s operating profitability when compared to previous years. |
| Adjusted EBITDA margin | Adjusted EBITDA margin is a percentage corresponding to the ratio of Adjusted EBITDA divided by revenue. The Company uses Adjusted EBITDA margin for purpose of evaluating business performance, excluding items that are not in the normal course of operations. Management believes this non-IFRS measure, provides users with enhanced understanding of its results and related trends. |
| Adjusted net earnings | Adjusted net earnings represents net earnings excluding items of significance listed above under Adjusted EBITDA, net of income taxes. The Company uses Adjusted net earnings to assess its business performance and profitability without the effect of items that are not in the normal course of operations, net of income taxes. Management believes this non-IFRS measure, provides users with an alternative assessment of the Company’s earnings without the effect of items that are not it the normal course of operations making it valuable to assess ongoing operations and trends in the business performance. Management also believes this non-IFRS measure provides users with enhanced understanding of the Company’s results and provides better comparability between period. |
| Adjusted net earnings per share | Adjusted net earnings per share represents Adjusted net earnings divided by the weighted average number of common shares outstanding for the relevant period. The Company uses Adjusted net earnings per share for purposes of evaluating performance and profitability, excluding items that are not in the normal course of operations of the Company, net of income taxes, on a per share basis. |
| Free Cash Flow | This measure corresponds to net cash flows related to operating activities according to the consolidated statements of cash flows less additions (net of disposals) to property, plant and equipment and intangible assets. Management considers Free Cash Flow to be a good indicator of the Company’s financial strength and operating performance because it shows the amount of funds available to manage growth, repay debt and reinvest in the Company. Management considers this measure useful to provide investors with a perspective on its ability to generate liquidity, after making capital investments required to support business operations and long-term value creation. |
The following tables provide the reconciliation of Non-IFRS Financial Measures:
Reconciliation of Net earnings to Adjusted EBITDA
(In thousands of dollars, except for margins)
| Three-month periods ended December 31 | Twelve-month periods ended December 31 | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Net earnings | 6,660 | 4,896 | 28,436 | 15,752 | ||||
| Income tax expense | 2,345 | 1,363 | 9,657 | 5,301 | ||||
| Net financing charges | 1,070 | 560 | 2,571 | 2,226 | ||||
| Depreciation of property, plant and equipment | 1,299 | 1,314 | 5,799 | 5,314 | ||||
| Depreciation of right-of-use assets | 1,239 | 1,144 | 4,529 | 4,830 | ||||
| Amortization of intangible assets | 1,106 | 867 | 3,762 | 3,381 | ||||
| EBITDA | 13,719 | 10,144 | 54,754 | 36,804 | ||||
| Acquisition costs related to business combinations | 520 | — | 550 | 164 | ||||
| Asset impairment | — | 2,074 | — | 2,074 | ||||
| Restructuring expenses | 966 | — | 1,410 | — | ||||
| Value adjustment on acquired inventory through a business combination | 127 | — | 127 | — | ||||
| Adjusted EBITDA | 15,332 | 12,218 | 56,841 | 39,042 | ||||
| Adjusted EBITDA Margin (%) | 19.5 | % | 18.5 | % | 20.9 | % | 17.2 | % |
Reconciliation of Net earnings to Adjusted net earnings and of Net earnings per share to Adjusted net earnings per share
(In thousands of dollars, except for per share amounts)
| Three-month periods ended December 31 | Twelve-month periods ended December 31 | |||
| 2022 | 2021 | 2022 | 2021 | |
| Net earnings | 6,660 | 4,896 | 28,436 | 15,752 |
| Adjustments, net of income taxes | ||||
| Acquisition costs related to business combinations | 385 | — | 407 | 122 |
| Asset impairment | — | 1,535 | — | 1,535 |
| Restructuring expenses | 715 | — | 1,043 | — |
| Value adjustment on acquired inventory through a business combination | 94 | — | 94 | — |
| Adjusted net earnings | 7,854 | 6,431 | 29,980 | 17,409 |
| Net earnings per share | 0.26 | 0.18 | 1.09 | 0.58 |
| Adjustments, net of income taxes, in dollar per share | 0.05 | 0.06 | 0.06 | 0.06 |
| Adjusted net earnings per share | 0.31 | 0.24 | 1.15 | 0.64 |
Reconciliation of Cash flows related to operating activities to Free Cash Flow
(In thousands of dollars)
| Three-month periods ended December 31 | Twelve-month periods ended December 31 | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Cash flows related to operating activities | 11,739 | 13,821 | 26,914 | 29,996 | ||||
| Acquisitions (net of disposals) of property, plant and equipment | (1,475 | ) | (1,132 | ) | (2,180 | ) | (3,304 | ) |
| Acquisitions of intangible assets | (71 | ) | (408 | ) | (372 | ) | (550 | ) |
| Free Cash Flow | 10,193 | 12,281 | 24,362 | 26,142 | ||||
Summary of three-month period ended December 31, 2022
Revenue
Total revenue for the three-month period ended December 31, 2022 was $78.8 million, representing an increase of $12.6 million, or 19.0%, from the equivalent quarter of 2021. The contribution from the Royal Envelope acquisition was approximately $9.7 million.
Envelope Segment
Revenue was $60.7 million, representing an increase of 30.1%, from $46.7 million in the equivalent quarter of 2021. The higher revenue reflects the contribution of the Royal Envelope acquisition, an average selling price increase of 48.8% from last year’s fourth quarter primarily stemming from a more favourable customer and product mix in U.S. operations, price increases to mitigate input cost inflation as well as a favourable currency conversion effect. These factors were partially offset by lower volume mainly due to very strong industry demand in the fourth quarter of 2021. The envelope segment represented 77.1% of the Company’s revenue in the quarter, versus 70.5% during the equivalent period of last year.
Packaging & Specialty Products Segment
Revenue was $18.1 million, down 7.6% from $19.6 million in the corresponding quarter of 2021. The variation is essentially attributable to the wind down of the Durabox operations and the one-time impact on sales resulting from interrupted production due to the relocation of the Town of Mount Royal folding carton operations, both of which occurred in the third and fourth quarters. The relocation process was completed at the end of the period. These factors were partially offset by higher sales at the Company’s other folding carton facility and increased demand from e-commerce packaging solutions. Packaging & specialty products represented 22.9% of the Company’s revenue in the quarter, compared to 29.5% during the equivalent period of last year.
EBITDA2 and Adjusted EBITDA2
EBITDA was $13.7 million, up 35.2% from $10.1 million in the fourth quarter last year. Adjusted EBITDA was $15.3 million, up 25.5%, from $12.2 million in the fourth quarter of 2021. This increase was the result of higher total revenue, partially offset by the higher cost of materials and higher selling, general and administrative expenses. The Adjusted EBITDA margin reached 19.5% of revenue, up from 18.5% in the equivalent quarter of 2021.
Envelope Segment
Adjusted EBITDA was $14.9 million, up 86.8%, or $6.9 million, from $8.0 million in the fourth quarter of 2021. This increase reflects higher revenue, in part due to the acquisition of Royal Envelope, as well as higher average selling prices primarily stemming from a more favourable customer and product mix in U.S. operations. On a percentage of segmented revenue, Adjusted EBITDA from the envelope segment was 24.5%, compared to 17.1% in the equivalent period of 2021.
Packaging & Specialty Products Segment
Adjusted EBITDA was $3.9 million, compared to $6.2 million in the fourth quarter of 2021. This decrease is largely explained by lower revenue related to the wind down of the Durabox operations commencing in the third quarter and the relocation of the Town of Mount Royal folding carton operations which interrupted production over a six-week period, resulting in an under absorption of fixed costs. On a percentage of segmented revenue, Adjusted EBITDA from the packaging and specialty operations was 21.6%, compared to 31.7% in the equivalent period of 2021.
Corporate and unallocated costs
The Corporate and unallocated costs were $3.5 million compared to $2.0 million in the fourth quarter of 2021. This increase is attributable to an unfavourable adjustment to the Deferred Share Unit (“DSU”) and Performance Share Unit (“PSU”) during the quarter due to share price appreciation and to higher remuneration related expenses.
Net Earnings, Adjusted Net Earnings, Net Earnings per share and Adjusted Net Earnings per share3
Net Earnings were $6.7 million or $0.26 per share for the three-month period ended December 31, 2022, compared to $4.9 million or $0.18 per share for the equivalent period last year.
Adjusted Net Earnings were $7.9 million or $0.31 per share for the three-month period ended December 31, 2022, compared to $6.4 million or $0.24 per share for the equivalent period in 2021.
Summary of fiscal year ended December 31, 2022
Revenue
Total revenue for the twelve-month period ended December 31, 2022 reached $272.5 million, a 20.3% increase from $226.4 million for the twelve-month period ended December 31, 2021. The contribution from the Royal Envelope acquisition amounted to approximately $9.7 million.
Envelope Segment
Revenue from the envelope segment was $200.3 million, an increase of $43.1 million, or 27.4%, from $157.2 million in the comparable period of 2021. This improvement reflects an average selling price increase of 28.6% from last year primarily driven by price increases implemented to mitigate input cost inflation, a more favourable customer and product mix in U.S. operations, a favourable currency conversion effect and the acquisition of Royal Envelope in the fourth quarter. The volume of units sold remained relatively stable with a year-over-year decrease of only 0.9%.
Packaging & Specialty Products Segment
Revenue was $72.1 million, up 4.2%, or $2.9 million, from $69.2 million during the twelve-month period ended December 31, 2021. Revenue growth came mainly from the acquisition of Vista and organic growth in folding carton and e-commerce packaging solutions, partially offset by lower corrugate box sales from the wind down of the Durabox operations and the relocation of folding carton business.
EBITDA3 and Adjusted EBITDA3
EBITDA increased by 48.8%, or $18.0 million, to $54.8 million in the twelve-month period ended December 31, 2022, from $36.8 million in the equivalent period of 2021. Adjusted EBITDA increased by 45.6%, or $17.8 million, to $56.8 million in the twelve-month period ended December 31, 2022, from $39.0 million last year. This increase is the result of higher revenue in both segments, driven primarily by higher average selling prices, partially offset by the higher cost of materials and the phasing out of the CEWS and CERS programs ($2.1 million in 2021). The Adjusted EBITDA margin increased to 20.9% of revenue, compared to 17.2% in the equivalent period of 2021.
Envelope Segment
Adjusted EBITDA was $49.9 million, up from $28.5 million in the equivalent period of 2021. This increase reflects higher revenue as a result of higher average selling prices primarily stemming from a more favourable customer and product mix in U.S. operations and in part, from the acquisition of Royal Envelope, completed in the fourth quarter. On a percentage of segmented revenue, Adjusted EBITDA from the Envelope segment was 24.9%, up from 18.1% in the equivalent period of 2021.
Packaging & Specialty Products Segment
Adjusted EBITDA was $15.2 million, up from $13.6 million in the comparable period of 2021, primarily due to higher revenue, driven by a more favourable product mix, partially offset by reduced profitability from the Durabox operations and the Town of Mount Royal Folding Carton relocation. On a percentage of segmented revenue, Adjusted EBITDA from the Packaging & specialty products segment was 21.0%, compared to 19.7% in the equivalent period of 2021.
Corporate and unallocated costs
The Corporate and unallocated costs amounted to $8.3 million compared to $3.1 million in 2021. The increase resulted from the phasing out of the CEWS and CERS programs ($2.1 million in 2021), an unfavourable adjustment to the DSUs and PSUs during the year due to share price appreciation and severances.
Net Earnings, Adjusted Net Earnings, Net Earnings per share and Adjusted Net Earnings per share4
Net Earnings were $28.4 million or $1.09 per share for the twelve-month period ended December 31, 2022, compared to $15.8 million or $0.58 per share for the equivalent period in 2021.
Adjusted Net Earnings were $30.0 million or $1.15 per share for the twelve-month period ended December 31, 2022, compared to $17.4 million or $0.64 per share for the equivalent period in 2021.
Liquidity and Capital Resources
Cash Flow
Net cash flows from operating activities were $11.7 million during the three-month period ended December 31, 2022, compared to $13.8 million in the equivalent period of 2021. The decrease is mainly attributable to higher working capital requirements, primarily due to an increase in inventories to meet customer demand in the coming quarters, partially offset by higher profitability.
Net cash flows from operating activities were $26.9 million during the twelve-month period ended December 31, 2022, compared to $30.0 million in the equivalent period of 2021. The variation essentially reflects the aforementioned factors.
Free cash flow4 amounted to $10.2 million in the fourth quarter of 2022, compared to $12.3 million for the same period last year, mainly attributable to lower cash flow from operations.
Free cash flow4 amounted to $24.4 million in the twelve-month period ended December 31, 2022, compared to $26.1 million in the corresponding period of 2021, mainly attributable to lower cash flow from operations, partially offset by lower acquisitions of property, plant and equipment, net of disposals.
Normal Course Issuer Bid (“NCIB”)
During the three and twelve-month periods ended December 31, 2022, the Company repurchased 20,000 and 438,400 common shares for cancellation through the current and prior NCIB, in consideration of $0.1 million and $1.5 million, respectively.
Debt and Leverage
The Company’s total debt increased to $54.7 million as at December 31, 2022, compared to $44.5 million as at December 31, 2021. Although the Royal Envelope acquisition was concluded for a consideration of $28.3 million, strong free cash flow generation enabled the Company to regularly proceed with debt repayment throughout the year.
Dividend Declaration
On February 22, 2023, the Board of Directors declared a quarterly dividend of $0.035 per common share, payable on April 7, 2023, to the shareholders of record at the close of business on March 23, 2023. This dividend is designated as an “eligible” dividend for the purpose of the Income Tax Act (Canada) and any similar provincial legislation.
Subsequent Event
On January 16, 2023, the Company announced the acquisition of Paragraph, an integrated provider of paper-based packaging, print and point of sale products for a broad range of commercial markets. The transaction was concluded for a total closing consideration of approximately $28.1 million, on a cash-free and debt-free basis, including an estimated working capital adjustment of $1.5 million. The acquisition was financed through the Company’s existing credit facility and the total consideration amount is subject to customary adjustments.
Outlook
Driven by solid demand for its products and a robust backlog, Supremex is operating at high-capacity levels given its current labour force. With proactive sourcing and a solid reputation in the marketplace, the Company has the ability to secure raw material in the event of shortages, as occurred until recently, and it also demonstrated it can successfully pass through cost inflation. Entering 2023, market conditions in the supply chain have returned to more normal levels.
In terms of capital deployment for 2023, the Company expects to invest in capital expenditures and continue paying quarterly dividends. The Company will also continue to look for strategic acquisitions, mainly in the Packaging and specialty products segment.
February 23, 2023 - Fourth Quarter Results Conference Call:
A conference call to discuss the Company’s results for the fourth quarter and fiscal year ended December 31, 2022 will be held Thursday, February 23, 2023 at 10:00 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. We suggest that participants call-in at least 5 minutes prior to the scheduled start time:
| • | Confirmation Number: | 78751807 |
| • | Local participants (Toronto area), dial: | 416-764-8646 |
| • | International participants, dial: | 416-764-8646 |
| • | North-American participants, dial toll-free: | 1-888-396-8049 |
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 1 877 674-7070 or 416 764-8692 and enter the code 751807. The recording will be available until Thursday, March 2, 2023.
Forward-Looking Information
This press release 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, Free Cash Flow5, capital expenditures, dividend payments and future performance of Supremex and similar statements or information concerning anticipated future results, circumstances, performance or expectations. Forward-looking information may include words such as anticipate, assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, seek, should, strive, target and will. Such information relates to future events or future performance and reflects current assumptions, expectations and estimates of management regarding growth, results of operations, performance, business prospects and opportunities, Canadian economic environment and ability to attract and retain customers. Such forward-looking information reflects current assumptions, expectations and estimates of management and is based on information currently available to Supremex as at the date of this press release. Such assumptions, expectations and estimates are discussed throughout the MD&A for the year ended December 31, 2022. Supremex cautions that such assumptions may not materialize and that economic conditions such as heightened inflation and central banks’ large interest rate hikes, economic downturns or recessions, may render such assumptions, although believed reasonable at the time they were made, subject to greater uncertainty.
Forward-looking information is subject to certain risks and uncertainties and should not be read as a guarantee of future performance or results and actual results may differ materially from the conclusion, forecast or projection stated in such forward-looking information. These risks and uncertainties include but are not limited to the following: decline in envelope consumption, growth and diversification strategy, key personnel, labour shortage, contributions to employee benefits plans, global health crisis, raw material price increases, operational disruption, increase of competition, dependence on and lost of customer relationships, economic cycles, exchange rate fluctuation, credit risks with respect to trade receivables, availability of capital, interest rate fluctuation, concerns about protection of the environment, potential risk of litigation, cyber security and data protection and no guarantee to pay dividends. In addition, risks and uncertainties arising as a result of the COVID-19 pandemic that could cause results to differ from those expected include, but are not limited to: potential government actions, changes in consumer behaviors and demand, changes in customer requirements, inflationary pressures on input costs and incapacity to pass raw material increases to customers, disruptions of the Company’s suppliers and supply chain, availability of personnel and uncertainty about the extent and duration of the pandemic. Such risks and uncertainties are discussed throughout the MD&A for the year ended December 31, 2022, and in particular, in ‘’Risk Factors’’. Consequently, the Company cannot guarantee that any forward-looking information will materialize. Readers should not place any undue reliance on such forward-looking information unless otherwise required by applicable securities legislation. The Company expressly disclaims any intention and assumes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.
The Management Discussion and Analysis and Financial Statements can be found on www.sedar.com and on Supremex’ website.
About Supremex
Supremex is a leading North American manufacturer and marketer of envelopes and a growing provider of paper-based packaging solutions. Supremex operates eleven manufacturing facilities across four provinces in Canada and six manufacturing facilities in four states in the United States employing over 1,000 people. Supremex’ 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, SMEs and solutions providers.
For more information, please visit www.supremex.com.
Contact:
Mary Chronopoulos
Chief Financial Officer
investors@supremex.com
514-595-0555, extension 2316
1 Non-IFRS financial measures or ratios. Refer to the non-IFRS financial measures section for definitions and reconciliations.
2 Non-IFRS financial measures or ratios. Refer to the non-IFRS financial measures section for definitions and reconciliations.
3 Non-IFRS financial measures or ratios. Refer to the non-IFRS financial measures section for definitions and reconciliations.
4 Non-IFRS financial measures or ratios. Refer to the non-IFRS financial measures section for definitions and reconciliations.
5 Non-IFRS financial measures or ratios. Refer to the non-IFRS financial measures section for definitions and reconciliations.
