Supremex Inc.

Supremex Inc.

February 20, 2008 09:00 ET

Supremex Income Fund: 2007 Fourth-Quarter Results

- Very strong adjusted EBITDA level at 27.7% - Payout ratio of 76.7% for the quarter and 92.8% for the year - NPG integration almost completed - Buyback of 1,743,500 units in the fourth quarter - 63% increase in net earnings during the quarter

MONTREAL, QUEBEC--(Marketwire - Feb. 20, 2008) -


Supremex Income Fund ("the Fund")(TSX:SXP.UN), Canada's largest provider of stock and custom-manufactured envelopes, today announced its results for the fourth quarter ended December 31, 2007.

The following financial information includes the results of the Fund for the twelve-month period ended December 31, 2007 and the two hundred and seventy-six-day period ended December 31, 2006 along with the results of Supremex for the period from January 1, 2006 to March 30, 2006. It is important to note that the NPG results are included in the results for 2007 since its acquisition on August 9th, 2007.

For the fourth quarter of fiscal 2007, the Fund posted revenue of $49.7 million, compared to $50.4 million for the three-month period ended December 31, 2006, representing a decrease of $0.7 million or 1.4%. The decrease is attributable mainly to sales in the United States offset by the increased sales in Canada. Revenue from sales in Canada increased by $2.4 million or 5.6%, from $42.8 million to $45.2 million, including the NPG sales for the quarter. It is impossible to isolate the NPG sales due to its full integration in Supremex during the fourth quarter. Revenue from sales in the United Stated decreased by $3.1 million or 40.8%, from $7.6 million to $4.5 million.

The increase in revenue from sales in Canada is due to the inclusion of the revenue generated from NPG in the quarter. Total sales in Canada increased by $2.4 million, attributable to a 2.7% increase of units sold combined with a 2.7% increase of the average selling price.

The reduction of volume sold to Cenveo as well as the strengthening of the Canadian dollar had a negative impact on the fourth quarter sales in the United States . The average selling price was down by 4.5%, driven by the 13.8% increase in the Canadian dollar, and the volume was lower by 37.2% from the fourth quarter of 2006. It is becoming very difficult to be competitive in the U.S. market with a Canadian dollar at parity, which has an adverse impact on volume.

Adjusted EBITDA for the fourth quarter was $13.8 million, compared to $12.7 million for the same period in 2006, representing an increase of $1.1 million or 8.7%. The ongoing integration of NPG explains the fourth quarter increase in Adjusted EBITDA.

EBITDA for the quarter was $13.3 million, compared with $12.7 million for the fourth quarter of 2006, an increase of $0.6 million or 4.7%. A charge of $418,000, relating to employees and facilities previously part of the Fund, was booked as restructuring expenses in the quarter as it relates to the plan adopted to integrate and restructure NPG following its acquisition.

Net earnings for the fourth quarter were $9.6 million or $0.31 per unit, compared to $5.9 million or $0.19 per unit for the same period in 2006, representing an increase of $3.7 million or 62.7%.

Distributable cash for the fourth quarter was $11.5 million or $0.37 per unit and $38.6 million year-to-date or $1.24 per unit. The Fund payout ratio, or distribution declared as a percentage of distributable cash, was 76.7% for the quarter and 92.8% for the year. Considering the impact of the Normal Course Issuer Bid (NCIB) for a full year, the payout ratio would have been 89.4% on a pro-forma basis, below the initial payout ratio target of 90.0%.

Cash flows generated by the operating activities were $13.8 million in the fourth quarter of 2007, compared to $16.2 million for the same period in 2006.

"I am very pleased with our fourth quarter results and our payout ratio of 76.7%," said Gilles Cyr, President and Chief Executive Officer of the Fund.

"Since the end of the third quarter, we have really focused our energy on integrating NPG, which we acquired in August 2007. I am happy to report that the integration is almost completed, with the announcement this morning of the merger of the Hamilton facility with our three manufacturing locations in the Greater Toronto Area. This will take place in the next 60 days and will increase our efficiencies in servicing our customers and will generate additional synergies identified as part of the acquisition.

Again in this quarter, we saw a Canadian dollar gaining a lot of momentum against the U.S. dollar, to finally see it stabilizing around parity. This constant increase in the Canadian dollar had a very negative impact on our U.S. sales, not only affecting the volume but also the average selling price. It is more and more difficult for Supremex to profitably export to the U.S. However, we are still committed to the U.S. market and are constantly looking for opportunities.

Our operating profit was strong in the fourth quarter, which is typical for the envelope industry given the strong direct mail season. Although demand remains weaker than in the past, we have been able to align our costs in order to mitigate the impact of the reduced volume. We are still reducing our production capacity to balance supply and demand and to adjust to the market trends as well as the drastic reduction in the volume of our exports to the U.S.

Not only have we announced a NCIB last November, but we quickly acted upon it and purchased and cancelled 1,743,500 Units, which is close to 90% of the maximum allowed. The purchase for cancellation of 5,6% of the issued Units is highly accretive for unitholders and is helping our payout ratio, which would be 89.4% on a pro-forma basis after giving effect to the buyback since the beginning of the year.

The business remains challenging, but Supremex is still performing well above its peers, remains very profitable and has demonstrated how rapidly it can create value through acquisitions. We have taken all actions necessary to protect and maintain the distribution at its current level and we have been able to bring back our payout ratio at the target level of 90% on a pro-forma basis. It is clear in my mind that the Fund's unit price is undervalued and does not at all reflect the positive impact of the NPG acquisition and the NCIB," said Mr. Cyr.

For the full year in 2007, the Fund generated revenue of $187.6 million, compared with $196.2 million in 2006, a decrease of $8.6 million or 4.4%. The 2007 revenue includes the results of operations of the NPG business since its acquisition on August 9th, 2007. Adjusted EBITDA in 2007 was $45.4 million, compared with $48.5 million in 2006, a decrease of $3.1 million or 6.4%.

Conference Call

A conference call covering the results of the third quarter of fiscal 2007 will be webcasted on and at 10:30 am. ET on February 21st, 2008 and will be available thereafter on these websites.

Forward-Looking Statements

This press release contains forward-looking statements relating to the future performance of the Fund. A statement is forward-looking when it uses what the Fund knows and expects today to make a statement about the future. Forward-looking statements may include words such as anticipate, assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, seek, should, strive, target and will. These statements relate to future events or future performance and reflect current assumptions, expectations and estimates of Management regarding growth, results of operations, performance, business prospects and opportunities, Canadian economic environment and liability to attract and retain customers. Such forward-looking statements reflect current assumptions, expectations and estimates of Management and are based on information currently available to the Fund as at the date of this document. Forward-looking statements are subject to certain risks and uncertainties, and should not be read as guarantees of future performance or results and actual results may differ materially from the conclusion, forecast or projection stated in such forward-looking statements. Consequently, we can not guarantee that nay forward-looking statements will materialize. Such assumptions, expectations, estimates, risks and uncertainties are discussed throughout our MD&A for the 2007 fiscal year and, in particular, in Risk Factors. Consequently, readers should not place any undue reliance on such forward-looking statements. The Fund disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

For further details, please see the Financial Statements below. The Financial Statements and Management's Discussion and Analysis can also be found on and on the Fund website

Non-GAAP Measures

References to EBITDA are to earnings from continuing operations before net financing charges, income taxes, amortization of property, plant and equipment, intangible assets, deferred compensation and gain on disposal of machinery and equipment.

Adjusted EBITDA is EBITDA adjusted to take into consideration the restructuring expenses, the conversion at Closing of a portion of Supremex's Management profit sharing plan into Units and the non-cash inventory step-up charge resulting from the adjustment to fair value of inventory at the date of acquisition of Supremex by the Fund.

Management views distributable cash as an operating performance measure. It is also generally used by Canadian income funds as an indicator of financial performance. Distributable Cash is defined as cash flow related to operating activities adjusted for the net change in non-cash working capital balances, change in post-retirement benefits obligation, change in accrued pension benefits assets, non-cash inventory step-up charges and maintenance capital expenditures. Distributable cash is important as it summarizes the funds available for distribution to unitholders.

EBITDA, Adjusted EBITDA and Distributable Cash are not earnings measures recognized under GAAP and do not have standardized meanings prescribed by GAAP. Therefore, EBITDA, Adjusted EBITDA and Distributable cash may not be comparable to similar measures presented by other entities. Investors are cautioned that EBITDA, Adjusted EBITDA and Distributable cash should not be construed as an alternative to net earnings or loss determined in accordance with GAAP as indicators of the Fund's performance or to cash flows from operating, investing and financing activities as measures of liquidity and cash flows.

About the Fund

Supremex Income Fund is Canada's largest manufacturer and marketer of a broad range of stock and custom envelopes and related products. Supremex is the only national envelope manufacturer in Canada, with 11 facilities across seven provinces and employs approximately 780 people. This nationwide presence enables it to manufacture products tailored to the specifications of major national customers such as leading Canadian corporations, national resellers and governmental entities, as well as paper merchants and process and solutions providers.

Supremex Income Fund
Reconciliation of EBITDA and Adjusted EBITDA to Net Earnings

Three-month Three-month
period ended period ended
December 31, 2007 December 31, 2006

Net earnings for the period 9,554,124 5,911,023

Add (deduct):
Amortization of property,
plant and equipment 1,204,897 924,066
Amortization of intangible assets 1,501,725 1,405,500
Amortization of deferred compensation 1,323,723 3,383,369
Loss on disposal of property,
plant and equipment 52,001 191,167
Net financing charges 1,347,369 1,002,862
Income taxes recovery (1,646,809) (76,567)

EBITDA 13,337,030 12,741,420

Restructuring expenses 418,635 -

Adjusted EBITDA 13,755,665 12,741,420

Supremex Income Fund
Reconciliation of distributable cash to cash flows related to operating

Three-month Three-month
period ended period ended
December 31, 2007 December 31, 2006

Cash flows related to operating activities 13,802,208 16,230,547

Add (deduct):
Net change in non-cash
working capital balances (1,400,069) (4,498,940)
Change in post-retirement
benefits obligation 89,100 19,400
Change in accrued pension benefit assets (462,000) 74,270
Maintenance capital expenditures (536,796) (942,774)

Distributable cash 11,492,443 10,882,503

Contact Information

  • Supremex Income Fund
    Stephane Lavigne, CA
    Vice-President and Chief Financial Officer