Supremex Inc. · TSX:SXP
Supremex — Q1 2024 Earnings Presentation
60 slides from Supremex's earnings presentation, May 2024
Slide 1: Investor Presentation May 2024
SupremeX (TSX: SXP.TO) INVESTOR PRESENTATION MAY 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 • Q1 2024 RESULTS • APPENDIX • Q1 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 • Improved financial performance over the past few years • Solid cash flow generation • Experienced leadership team • Att
Slide 5: Supremex Overview
TSX: SXP.TO SUPREMEX OVERVIEW INVESTOR PRESENTATION May 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 MARCH 31, 2024 ~30% ENVELOPE: $287M ~70% (1) Based on Management estimates SupremeX is a leading North American manufacturer and marketer of envelope
Slide 7: A 45-year History Of Growing By Acquisitions
A 45-year History Of Growing By Acquisitions • Founded in 1977 by four envelope industry executives • Acquired by private equity in 1990; sold to Cenveo in 1995 Focused on envelope manufacturing in Canada Diversifying by geography & product 1991 1994 1996 1998 2000 2001 2006 2007 2008 2010 2011 2014
Slide 8: Vast North American Network
Vast North American Network Location Type 1 Richmond, BC Envelope Canada ● 2 Winnipeg, MB Envelope Canada ● 3 Etobicoke, ON* Envelope Canada & Packaging ● 4 Mississauga, ON Envelope Canada ● 5 Concord, ON Envelope Canada ● 6 Moncton, NB Envelope Distribution Center ● 7 LaSalle, QC* Envelope Canada &
Slide 9: Experienced Leadership Team
Experienced Leadership Team 33 years of industry experience STEWART EMERSON Started at predecessor to Supremex in 1990. Previously VP and GM Central Region and Buffalo Envelope. President & CEO Responsible for leading many successful M&A integrations. Holds a Bachelor’s Degree in Business (Director
Slide 10: Recent Financial Performance
Recent Financial Performance Revenue (M$) Adjusted EBITDA (M$)(1) Net Earnings (M$) 28 302 57 287 49 272 39 41 17 226 16 33 205 11 7 2020 2021 2022 2023 LTM Q1-24 2020 2021 2022 2023 LTM Q1-24 2020 2021 2022 2023 LTM Q1-24 (1) This is a non-IFRS financial measure. Non-IFRS financial measures do not
Slide 11: Historical Price Chart
Historical Price Chart (as of April 30, 2024) Shares outstanding 25.2M 2,000 Float 16.1M $8 Average daily volume 36,630 (52 weeks on TSX) 1,500 52 week (high-low) $6.80-$3.58 $6 Market capitalization $98M (in ‘000s of shares) 1,000 $4 $3.89 500 $2 0 $0 Apr-19 Oct-19 Apr-20 Oct-20 Apr-21 Oct-21 Apr-2
Slide 12: Sustainability in Action
Sustainability in Action We take a leadership role in our industry by implementing several “green initiatives”. CARBON REDUCTION PROGRAM “PLEASE RECYCLE” PROGRAM WASTE RETROFIT • Manufacture as close to the end • Offer our customers the option to MANAGEMENT LIGHTING customer as feasible to limit fre
Slide 13: Detailed Segment Overview
TSX: SXP.TO DETAILED SEGMENT OVERVIEW INVESTOR PRESENTATION May 2024 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.” Q1-24 Revenue 2020-2024 Revenue Key Points 213 • Optimal geographical network 203 200 • Leading p
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 • Graphic arts services (basic design and creative Description customers for a variety of applications. according to
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. Q1-24 Revenue 2020-2024 Revenue Key Points 89 84 • #1 independent folding
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, Description printed, laminated, cut, then shipping and reduce over booklets & 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 Contracts Supremex Edge Packaging Revenue Distribution(1) 8% • Agreements vary according to the Proximity to customer base: type of packaging and custom
Slide 20: The Market
TSX: SXP.TO THE MARKET INVESTOR PRESENTATION May 2024 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 the second largest manufacturer in North America Canadian Envelope Market U.S. Envelope Market Market Size –Sales $140M(1) US$2.0B(2) Competitive Landscape • Supremex is a leading playe
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 steadily declined since 2018 decreased, but at a lesser rate 56,712 5-YR CAGR: 54,936 3,018 (6.2%) 52,628 5-YR CAGR: 2,826 (4.1%) 2,540 50,664 2,478 (in millions of pieces)
Slide 23: 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 since remained stable economic uncertainty in 2023 5-YR CAGR: 77,270 4,653 4,578 (3.0%) 75
Slide 24: 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 25: Package and Parcel Volume Trends in North America
Package and Parcel Volume Trends in North America Parcel volume handled by Canada Post has Even after the 2020-21 COVID-related spike, U.S. Package dropped below the 2020-21 COVID-related spike & Parcel volume remains higher than 5 years ago 5-YR CAGR: 5-YR CAGR: 0.0% 2.8% 7,585 389 7,325 7,232 7,05
Slide 26: Growth Strategy
TSX: SXP.TO GROWTH STRATEGY INVESTOR PRESENTATION May 2024 26
Slide 27: 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 28: 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 29: 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 30: 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 31: 2023 Acquisitions Enhance Folding Carton Offering
2023 Acquisitions Enhance Folding Carton Offering to Niche Markets Quick Facts Rationale Quick Facts Rationale • Concluded on January 16, 2023 • Brings critical mass to folding carton • Concluded on May 8, 2023 • Perfect fit with existing • Integrated provider of paper-based operations in Québec • P
Slide 32: Financial Track Record
TSX: SXP.TO FINANCIAL TRACK RECORD INVESTOR PRESENTATION May 2024 32
Slide 33: Growing Revenues
Growing Revenues Successfully managing secular decline of Envelope Segment and diversification into Packaging Segment 302 287 272 CAGR: 89 205 226 72 84 10.8% 192 69 58 (in millions of $) 55 CAGR: 157 200 213 203 9.7% 137 147 2019 2020 2021 2022 2023 LTM Q1-24 Envelope Packaging Note: Totals may not
Slide 34: Adjusted EBITDA and Margin
Adjusted EBITDA and Margin Focusing on operational leverage and extracting cost efficiencies 56.8 49.1 20.9% 40.8 39.0 17.2% 16.3% 32.5 15.9% 28.4 (in millions of $) 13.2% 25.2 14.2% 17.3 15.8 10.4% 3.7% 11.3 7.1 7.5 7.0% 3.9% 5.7% 3.7% 2019 2020 2021 2022 2023 LTM Q1-24 (1) (1) Adjusted EBITDA Net
Slide 35: Generating Solid Cash Flows
Generating Solid Cash Flows Tight working capital management and enhanced profitability have significantly improved cash flow 43.9 40.0 41.5 41.3 37.0 34.4 30.0 26.1 26.9 (in millions of $) 24.4 20.2 14.1 2019 2020 2021 2022 2023 LTM Q1-24 Cash Flows Related to Operating Activities Free Cash Flow (1
Slide 36: 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 1.7 2019 2020 2021 2022 2023 YTD Q1-24 Capex (1) Acquisitions Dividends Share repurchases Growth investments $108.0M Return to shareholders $26.5M 2019
Slide 37: Dividend Payments
Dividend Payments Quarterly dividend reinstated in Q1-22; increased three times since then 2023 payout was 9.1% of annual free cash flow Current payment is 4 cents per share ($0.16 annually) $0.250 Reinstated Q1-22 14.0% (5 payments in $0.200 Suspended the 2022) 12.0% dividend in Q1-20 due to COVID-
Slide 38: 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 2.0x 2.0x 56.7 56.8 54.9 1.6x 53.7 54.7 44.6 (in millions of $) 55.4 53.7 1.5x 1.3x 51.2 52.5
Slide 39: Q1-2024 Results
TSX: SXP.TO Q1-2024 RESULTS INVESTOR PRESENTATION May 2024 39
Slide 40: Q1-2024 Highlights & Recent Events
Q1-2024 Highlights & • Revenue of $73.3M, down from $88.4M last year. Up sequentially from Recent Events $72.3M in Q4-23. • Adjusted EBITDA(1) of $10.5M (14.3% of revenue), vs. $18.8M (21.3% of revenue) last year. Up sequentially from $9.0M (12.4% of revenue) in Q4-23. • Net earnings(1) of $3.5M ($0
Slide 41: Revenue Overview – Sequential Improvement
Revenue Overview – Sequential Improvement Revenue (M$) Y/Y Variance Analysis Highlights $88.4 Envelope: $72.3 $73.3 (M$, except %) Envelope Packaging TOTAL 24.0 (-) Lower volume due to the effect of higher interest rates and inflation on 21.7 19.8 Q1-23 64.5 24.0 $88.4 market demand Revenue Volume (
Slide 42: Adjusted EBITDA and Net Earnings – Sequential Improvement
Adjusted EBITDA(1) and Net Earnings – Sequential Improvement Adjusted EBITDA (M$)(1) & margin (%)(1) Envelope Adjusted EBITDA margin(1) Net earnings (M$) & margin 24.0 30.0% $18.8 28.0% 20.4% 3.8 26.0% $9.5 18.0 24.0% 22.0% 21.3% $10.5 20.0% 12.0 $9.0 1.2 18.0% 17.3 16.0% 1.3 10.7% 14.3% 14.0% 6.0 1
Slide 43: Net Earnings and Adjusted Net Earnings - Sequential Improvement
Net Earnings and Adjusted Net Earnings(1) - Sequential Improvement Net earnings (M$) & EPS Adjusted net earnings(1) (M$) & per share(1) Q1-24 Elements $9.5 $9.8 - Restructuring expenses $0.38 $0.37 $0.09 $3.5 $3.5 $0.7 $2.2 $0.03 $0.14 $0.14 Q1-23 Q4-23 Q1-24 Q1-23 Q4-23 Q1-24 (1) This is a non-IFRS
Slide 44: Cash Flow from Operating Activities and Free Cash Flow
Cash Flow from Operating Activities and Free Cash Flow Net Cash flow related to operating activities (M$) Free cash flow(1) (M$) Highlights $7.5 (+) Lower working capital $5.1 $4.7 requirements $3.4 (+) Lower capital expenditures (FCF) (-) Lower net earnings Q1-23 Q1-24 Q1-23 Q1-24 (1) This is a non
Slide 45: Financial Position Remains Solid
Financial Position Remains Solid Total Debt (M$) Net Debt to Adj. EBITDA Ratio (1) Highlights 81.4 78.2 Paragraph Graf-Pak 76.9 69.2 • Q1 debt decrease reflects 79.0 56.8 68.1 54.9 1.3x 1.3x free cash flow generation 1.2x 1.2x 1.1x 55.4 53.7 • Ample liquidity available • Ratio well below target leve
Slide 46: Outlook
Outlook Positive factors • Financial position and cash flow are strong • Strong team, broad product offering, geographical diversification, solid supplier relationships Short-term concerns • Pace of recovery is slower than expected in industries served • Market recovery remains adversely impacted by
Slide 47: Appendix
TSX: SXP.TO APPENDIX INVESTOR PRESENTATION May 2024 47
Slide 48: Q1 Supplemental Information - Summary
Q1 Supplemental Information - Summary Selected Consolidated Financial Information Three-month periods (In thousands of dollars, except for margins) ended March 31 2024 2023 Revenue 73,268 88,422 Operating expenses 52,460 58,061 Selling, general and administrative expenses 10,318 11,811 Operating ear
Slide 49: Q1 Supplemental Information - Segmentation
Q1 Supplemental Information - Segmentation Selected Consolidated Financial Information Three-month periods (In thousands of dollars, except for margins) ended March 31 2024 2023 Segmented Revenue Envelope 53,426 64,455 Packaging & specialty products 19,842 23,967 Total revenue 73,268 88,422 Segmente
Slide 50: Non-IFRS Financial Measures
Non-IFRS Financial Measures 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. Managemen
Slide 51: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net Earnings to Adjusted EBITDA Three-month periods (In thousands of dollars, except for margins) ended March 31 2024 2023 Net Earnings 3,496 9,497 Income tax expense 1,153 3,404 Net financing charges 1,114 1,470 Depreciation of propert
Slide 52: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net earnings to Adjusted net earnings and of Net Three-month periods earnings per share to Adjusted net earnings per share ended March 31 (In thousands of dollars, except for per share amounts) 2024 2023 Net earnings 3,496 9,497 Adjustm
Slide 53: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net Earnings to Adjusted EBITDA LTM Q1-24 2023 2022 2021 2020 2019 (In thousands of dollars, except for margins) Revenue 287,034 302,187 272,467 226,430 204,604 191,669 Net earnings 11,333 17,334 28,436 15,752 7,495 7,088 Income tax exp
Slide 54: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Net Earnings to Adjusted Net Earnings LTM Q1-24 2023 2022 2021 2020 2019 (In thousands of dollars, except for per share amounts) Net earnings 11,333 17,334 28,436 15,752 7,495 7,088 Adjustments, net of income taxes Retroactive COVID-rel
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 LTM Q1-24 2023 2022 2021 2020 2019 (In thousands of dollars) Net cash flows related to operating activities 41,454 43,899 26,914 29,996 37,025 20,181 Acquisitions (net of disp
Slide 56: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Reconciliation of Cash flows related to operating activities to Free Q1-24 2023 Q4-23 Q3-23 Q2-23 Q1-23 2022 Q4-22 Q3-22 Q2-22 Q1-22 Cash Flow (In thousands of dollars) Net cash flows related to operating 5,096 43,899 14,814 11,538 10,006 7,541 26,914 11
Slide 57: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Net Debt to Adjusted EBITDA ratio (in thousands of dollars) Q1-24 2023 2022 2021 2020 2019 Total debt 54,877 56,766 54,748 44,529 56,750 53,815 Deferred financing costs (203) (256) (334) (178) (307) (343) Cash (1,006) (1,066) (1,929) (6,365) (3,036) (2,2
Slide 58: Reconciliation of Non-IFRS Financial Measures
Reconciliation of Non-IFRS Financial Measures Net Debt to Adjusted EBITDA ratio Q1-2024 Q4-2023 Q3-2023 Q2-2023 Q1-2023 Q4-2022 Q3-2022 Q2-2022 Q1-2022 (in thousands of dollars) Total debt 54,877 56,766 69,163 78,624 81,352 54,748 33,053 36,673 44,878 Deferred financing (203) (256) (309) (359) (267)
Slide 59: 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 60: Head Office and Contact
www.supremex.com Head Office investors@supremex.com 7213 Cordner Street Tel: (514)-731-0000 extension 229 LaSalle, Quebec H8N 2J7