Richards Packaging Income Fund : July 29, 20212021 Quarterly Reports – 2nd Quarter Results

Q2 QUARTERLY REPORT

Richards Packaging Income Fund

Quarter ended June 30, 2021

Report Contents
Report to unitholders...............................................................................	1
Management's discussion and analysis...................................................	2
Financial statements ................................................................................	9
Notes to financial statements ..................................................................	13

Richards Packaging Income Fund

REPORT TO UNITHOLDERS

June 30, 2021

Richards Packaging has been providing packaging solutions to small-andmedium-sized North American businesses since 1912. Over this period Richards Packaging has developed into the leading packaging distributor in Canada, and the third largest in North America, with one of the most diverse product and service offerings available to product marketers and healthcare providers.

Financial performance in the second quarter was similar to the first quarter with the exception that inventory rose an additional $15 million as Richards and our customers try to find a new normal in a supply disrupted world while compensating for shipment uncertainty. Half of this investment should unwind by year end. The other significant changes relate to the Clarion acquisition with the payment of $8 million of the holdback and the accrual of $13 million for a potential future payout.

Second quarter revenue was down 11%, with 14% due to the unwind of 83% of the coronavirus impact and 10% due to a currency translation loss as the dollar strengthened to U.S./Cdn. 81¢, partially offset by 12% revenue growth from Clarion. Adjusted EBITDA1 was down $9 million, at 16% of revenue, mainly due to lower volumes and the foreign currency impact of a weaker dollar in addition to a 36% drop in Richards US revenue. Earnings were lower due to a less favorable product mix and the lack of fixed cost savings on higher comparable volumes without any price increases. Net income decreased $4 million, or 70¢ per Unit, due to the recognition of $13 million contingent consideration for the Clarion acquisition and lower Adjusted EBITDA net of taxes being partially offset by a mark-to-market gain on a $8.31 reduction in the Unit price.

July revenue was down approximately $13 mil. due to the unwinding of 80% of the revenue associated with the coronavirus and the Canadian dollar strengthening by 5¢ to U.S./Cdn. 79¢.

Free cash flow2 of $8 million generated in the second quarter was utilized to purchase $2 million of units, repay $1 million of term debt and to release $8 million of the Clarion acquisition holdback. The leverage at 0.3x as at June 30th is up 0.1x from the previous year end.

Monthly distributions of 11¢ per Unit represented an annualized yield of 2.2% on the June 30th closing price of $61.25 per Unit. The second quarter payout ratio3 was 31%.

We appreciate the support of our customers, suppliers, employees and investors and will continue to execute on our commitments with the highest degree of quality, care and integrity.

"Gerry Glynn"	July 29, 2021
Director & Trustee

Richards Packaging Income Fund

6095 Ordan Drive

Mississauga, Ontario, L4T 2M7

1

Richards Packaging Income Fund

MANAGEMENT'S DISCUSSION AND ANALYSIS

July 29, 2021

This management's discussion and analysis ("MD&A") of Richards Packaging Income Fund for the second quarter should be read in conjunction with the attached condensed interim financial statements dated June 30, 2021, the first quarter report dated May 4, 2021, the 2020 Annual Report and the 2020 Annual Information Form dated March 5, 2021 respectively. Results are reported in Canadian dollars and have been prepared in accordance with International Financial Reporting Standards ("IFRS") on a consistent basis with the 2020 annual financial statements.

Description of the Business

Richards Packaging serves a customer base of approximately 17,000 regional food, beverage, cosmetic, healthcare and other enterprises. Revenue from the distribution of over 8,000 different types of packaging components and healthcare products is sourced from over 900 suppliers and 4 dedicated manufacturing facilities. Manufacturing represents 5% of revenues (2020 6%) and employees who had gone on strike April 26th at one of the manufacturing facilities have ratified a two-year contract.

Financial Highlights

This MD&A covers the three and six months ended June 30, 2021, generally referred to in this MD&A as the "second quarter" and the "first half", respectively. The following table sets out selected financial information:

($ thousands)	Qtr. 2			First half
	2021	2020	2021	2020
Income Statement Data:
Revenue……………………………	113,030	127,019	222,903	235,910
Net income…………………………	1,663	5,944	15,760	20,910
Diluted per Unit a)………………	-17.4¢	52.9¢	75.7¢	$1.86
Financial Position Data:
Assets……………………………	348,746	328,980
Long-term financial liabilities………	59,438	71,563
Leverageb)………………………	0.3	0.4
Cash Flow Statement Data:
Distributions………………………	3,856	3,859	7,715	7,718
Diluted per Unit ………………	33.0¢	33.0¢	66.0¢	66.0¢
Payout ratio 3 …………………	31%	21%	33%	25%
Unit purchases………………….	1,633	-	1,633	-
Debt repayments (borrowing)……	(452)	(22,000)	(452)	(20,000)

1. anti-dilutiveresult reverts back to basic income per unit
2. Term debt /Adjusted EBITDA 1

Financial highlights for the first half:

• Revenue was down 5.5% due 12.2% to the unwinding of the coronavirus impact and 8.6% from currency translation with a U.S./Cdn. 7.3¢ increase to 80.2¢, partially offset by an 14.6% increase from Clarion,
• Adjusted EBITDA1 decreased $11.2 mil., at 15.9% of revenue, on less fixed costs and product mix benefits at lower revenue levels, a drop of $6.1 mil. currency translation gain and a $2.2 mil. increase in administrative expenses reflecting the addition of Clarion,
• Income taxes down $4.9 mil. on lower taxable income,
• Net income decreased $5.2 mil., or $1.10 per Unit, due to $13.2 mil. contingent consideration for the Clarion acquisition and lower Adjusted EBITDA partially offset by a higher mark-to-market gain on exchangeable shares due to a $15.60 reduction in the unit price (2020 $16.0 increase),

2

Richards Packaging Income Fund

MANAGEMENT'S DISCUSSION AND ANALYSIS

July 29, 2021

• Assets increased by $19.8 mil. mainly to invest in inventory and long-term financial liabilities decreased by $12.1 mil., due to debt payments,
• Non-cashworking capital increased $15.8 mil. mainly due to higher inventory,
• Free cash flow2 of $15.9 mil. was used to purchase $1.6 mil. of units for cancellation, repay $1.0 mil. of term debt, release $8.0 mil. of the Clarion holdback and fund working capital,
• Leverage ratio at 0.3x was comparable to the ratio at December 31, 2020,
• Distributable cash flow2 down $7.1 mil., or 61¢ per Unit, resulted in a 33% payout ratio3, and
• Monthly distributions of 11¢ per Unit paid represented a 2.2% annualized return on the June 30th closing price of $61.25 per Unit. These distributions have been characterized as taxable dividends.

Financial highlights for the second quarter: Revenue was down $14.0 mil., due to unwinding of the coronavirus impact by 82.7% and a loss from currency translation as the U.S./Cdn. rate increased 9.3¢ to 81.4¢. Clarion partially offset this decrease by contributing $21.4 mil. to overall revenue.

Cosmetics packaging decreased $15.8 mil., excluding the impact of translation, mainly due to lower volumes related to the coronavirus.

Healthcare decreased $0.8 mil. mainly due to decreased volume related to the coronavirus.

Clarion monthly revenues at $7.1 mil. was higher than the 2019 monthly average due to pent up demand as clinics purchased in June in anticipation of re-opening.

Revenue growth	Qtr.2	First half
(% change over p/y)	2021	2020	2021	2020
Cosmetics……………….....	-41.3%	82.5%	-34.7%	84.1%
Healthcare………..................	-3.1%	25.1%	-3.6%	20.4%
Clarion………......................	11.6%	7.7%	14.6%	3.9%
Food, beverage & other…....	0.9%	11.1%	-1.2%	8.5%
Exchange translation….........	-9.9%	10.8%	-8.6%	9.5%
Weighted average growth…..	-11.0%	48.6%	-5.5%	41.0%

Revenue trend
($ thousands)	Qtr. 2		First half
	2021	2020	2021	2020
Prior year	127,019	85,451	235,910	167,350

Food, beverage and other packaging increased by $0.3 mil., excluding the impact of translation, reflecting a $2.0 mil. lost customer due to increased pricing caused by the US tariff on China.

Organic growth………	1,476	4,384	1,340	6,784
	1.2%	5.1%	0.6%	4.1%
Coronavirus…..............	(17,700)	21,390	(28,700)	39,353
Clarion….......................	14,755	6,608	34,537	6,608
Foreign exchange…....	(12,520)	9,186	(20,184)	15,815

Cost of sales, before amortization, decreased by $5.0 mil., or 5.4%. Gross profit margins were down 4.5% similar to first quarter levels. Resin price volatility did management's practice of passing through increases and

Current year

113,030

127,019

222,903

235,910

not have a material impact on margins due to decreases to customers.

Lease payments decreased $0.3 mil. and administrative expenses (before amortization) increased $0.4 mil. mainly due to the addition of Clarion. Foreign currency loss (gain) resulted from exchange rate changes applied to our U.S. dollar denominated working capital position in Richards Canada and our U.S. and Euro dollar positions in Clarion.

3

Richards Packaging Income Fund

MANAGEMENT'S DISCUSSION AND ANALYSIS

July 29, 2021

($ thousands)	Qtr. 2		First half
	2021	2020	2021	2020
Revenue………………………… 113,030	127,019	222,903	235,910
Cost of sales………………………	87,654	92,627	172,905	176,674
Lease payments…………………	1,901	2,198	3,914	4,093
Gross profit………………………	23,475	32,194	46,084	55,143
	20.8%	25.3%	20.7%	23.4%
Administrative expenses…………	5,133	4,701	10,407	8,183
Foreign currency loss (gain)………	(11)	148	212	322
Adjusted EBITDA1……………
18,353	27,345	35,465	46,638

Amortization is comprised of $1.8 mil. for leases, $0.8 mil. for intangible assets, a charge for customer relationships, and depreciation for capital assets of $0.5 mil.

Adjusted EBITDA1 decreased $9.0 mil., or 5.3% of revenue, on less fixed cost and product mix benefits at lower revenue levels and a drop in the currency translation gain as the dollar appreciated 9.3¢.

	16.2%	21.5%	15.9%	19.8%
Lease payments…………………	(1,901)	(2,198)	(3,914)	(4,093)
Amortization……………………	3,096	2,901	6,100	5,464
Contingent consideration…………	13,200	-	13,200	-
Exceptional items…………………	-	1,118		-	1,118
Financial expenses………………	1,365	1,189	2,775	2,244
Exchangeable shares………………	(3,695)	10,682	(6,917)	7,714
Share of income - Vision…………	(16)	(88)	(35)	(93)
Income tax expense………………	4,641	7,797		8,496	13,374
Net Income………………………	1,663	5,944		15,760	20,910

Contingent consideration was recognized associated with the Clarion acquisition based on the nine months performance to June 30th projected for a full year.

1
Adjusted EBITDA trend
($ thousands)	Qtr. 2		First half
	2021	2020	2021	2020
Prior year	27,345	12,446	46,638	24,219
(% of revenue)	21.5%	14.6%	19.8%	14.5%
Organic growth…………....	369	4,728	335	7,660
Product mix….......................	(2,592)	3,445	(4,419)	6,902
Fixed cost…..........................	(2,449)	2,914	(3,668)	4,747
Lease A/R write down……	-	-	2,690	(2,690)
Foreign exchange…............	(4,320)	3,812	(6,111)	5,800
Current year	18,353	27,345	35,465	46,638
(% of revenue)	16.2%	21.5%	15.9%	19.8%

Exceptional items represent professional fees associated with our acquisition of Clarion. Financial expenses were $0.2 mil. higher mainly due to the debt associated with Clarion.

Exchangeable shares mark-to-market gain reflects a price decrease of $8.31 to $61.25 per Unit (2020 increase of $22.74 per Unit). Exchangeable share distributions were flat at $0.2 mil.

Income tax expense decreased $3.2 mil. on lower taxable income. Net income was down $4.3 mil., which represented a 70¢ per Unit decrease.

Distributable Cash Flow2

Distributable cash flow2 for the second quarter and first half was $6.2 mil. and $7.1 mil. lower, respectively, as Adjusted EBITDA1 decreases were partially offset by associated income taxes.

4