Supremex Inc.

Supremex Inc.

May 12, 2008 18:14 ET

Supremex Income Fund: 2008 First Quarter Results

- Adjusted EBITDA of 24.6% compared to 23.7% in 2007 - Payout ratio of 90.4% for the quarter - NPG integration completed well ahead of plan - Buyback of 2 million units (NCIB) completed - Net earnings of $0.21 per unit vs $0.22 in the first quarter of 2007


Supremex Income Fund ("the Fund") (TSX:SXP.UN), Canada's largest provider of stock and custom-manufactured envelopes, today announced its results for the first quarter ended March 31, 2008.

For the first quarter of 2008, the Fund generated revenue of $47.5 million compared to $47.7 million for the three-month period ended March 31, 2007, representing a decrease of $0.2 million or 0.4%. The decrease is mainly attributable to sales in the United States offset by the increased sales in Canada. Revenue from sales in Canada increased by $2.9 million or 7.1%, from $40.9 million to $43.8 million. Revenue from sales in the United States decreased by $3.1 million or 45.6%, from $6.8 million to $3.7 million.

Total sales in Canada increased by $2.9 million, attributable to a 10.7% increase of units sold offset by a decrease of the average selling price of 3.3%. The increased volume sold in Canada is mainly due to the inclusion of the revenue generated from NPG in the quarter. However, it is impossible to isolate the exact NPG revenue due to its full integration in Supremex during the fourth quarter of 2007.

The decrease in revenue from sales in the United States is due to a decrease in the number of units sold of 49.6% offset by an increase of price of 8.6% considering the strengthening of the Canadian dollar of 14.3%. This increase in the average selling price is the result of a change in the product mix, selling less volume to Cenveo at a low average selling price. The sales to Cenveo were minimal in the first quarter. The supply agreement with them expired on March 31, 2008.

Adjusted EBITDA for the first quarter was $11.7 million compared to $11.3 million for the same period in 2007, representing an increase of $0.4 million or 3.5%. The ongoing integration of NPG explains the first quarter increase in Adjusted EBITDA and the mix of having more Canadian sales and less US sales.

EBITDA for the quarter was $11.3 million, unchanged with first quarter of 2007. Restructuring expenses of $368,000 relating to employees and facilities previously part of the Fund were booked in the quarter as they relate to the plan adopted to integrate and restructure NPG following its acquisition.

Net earnings for the first quarter were $6.3 million or $0.21 per unit, compared to $6.9 million or $0.22 per unit for the same period in 2007, representing a decrease of $0.6 million or 8.7%.

Distributable cash for the first quarter was $9.4 million or $0.32 per unit compared to $9.5 million or $0.30 per unit in the first quarter of 2007. The Fund payout ratio, or distribution declared as a percentage of distributable cash, was 90.4% for the quarter and 86.9% if we exclude the restructuring expenses.

Cash flows generated by the operating activities were $8.2 million in the first quarter of 2008, compared to $6.2 million for the same period in 2007.

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

"Since the end of the third quarter of 2007, we have really focused our energy on integrating NPG, which we acquired in August 2007. I am happy to report that the integration is now completed and should generate approximately $4 million in cost savings on an annual basis. We are back to the level of employees we had before the acquisition and the 2 manufacturing plants of NPG have been combined with Supremex facilities in their respective regions. These strategic decisions increased our efficiencies in servicing our customers and are generating the synergies identified as part of the acquisition.

The strong Canadian dollar had again a negative impact on our sales in United States, not only affecting the volume but also the profitability. It is more and more difficult for Supremex to export to the United States. However, we are still committed to the United States market and are constantly looking for opportunities.

In spite of reduced volume, the operating profit was in line with our expectations and demonstrates that we have managed our costs very well. Because of the ongoing volume reduction of our exports to the United States, we are still aligning our production capacity to balance supply and demand, and reducing our overall costs of production.

Finally, in the first quarter, we have completed the NCIB announced last November. The average cost of the 2,000,000 units purchased for cancellation was $5.88," said Mr. Cyr.

Conference Call

A conference call covering the results of the first quarter of fiscal 2008 will be webcasted on and at 9:00 am. ET on May 13th, 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 before net financing charges, income taxes, amortization of property, plant and equipment, intangible assets, deferred compensation and gain or loss on disposal of property, plant and equipment.

Adjusted EBITDA is EBITDA adjusted to take into consideration the restructuring expenses 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 facilities across seven provinces and employs approximately 760 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
March 31, 2008 March 31, 2007

Net earnings for the period 6,332,348 6,887,807

Add (deduct):
Amortization of property, plant and
equipment 1,156,933 938,201
Amortization of intangible assets 1,501,725 1,405,500
Amortization of deferred compensation 1,323,723 1,329,333
(Gain) loss on disposal of property,
plant and equipment (13,928) 8,687
Net financing charges 1,406,419 886,814
Income taxes recovery (391,886) (161,927)
EBITDA 11,315,334 11,294,415

Restructuring expenses 367,705 -

Adjusted EBITDA 11,683,039 11,294,415

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

Three-month Three-month
period ended period ended
March 31, 2008 March 31, 2007

Cash flows related to operating
activities 8,224,333 6,245,884

Add (deduct):
Net change in non-cash working capital
balances 1,993,109 4,048,202
Change in post-retirement benefits
obligation 4,500 -
Change in accrued pension benefit assets (272,000) 129,700
Maintenance capital expenditures (575,478) (911,842)

Distributable cash 9,374,464 9,511,944

Contact Information

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