Transcontinental Inc. Class A · TSX:TCL.A
Transcontinental Inc. Class A — TC Transcontinental — Investor Presentation (April 2014)
64 slides from Transcontinental Inc. Class A's investor presentation, Apr 3, 2014
Slide 1: Investor Presentation: Optimize. Invest. Diversify.
I N V E S T O R P R E S E N TAT I O N April 3, 2014 Optimize. Invest. Diversify.
Slide 2: Forward-Looking Statement
Forward‐Looking Statement This presentation contains certain forward-looking statements concerning the goals of the Corporation, its strategy, its projected financial results and expectations as to its operations. Such statements, based on the current expectations of management, inherently involve n
Slide 3: Table of Contents
Table of Contents SECTION 1 Our Profile 4 SECTION 2 Hot Topics 16 SECTION 3 Strategy 27 SECTION 4 Print Sector 30 SECTION 5 Media Sector 39 SECTION 6 New Growth Area 47 SECTION 7 Financial Situation 55 SECTION 8 Conclusion 63 3
Slide 4: Our Profile
SECTION Our Profile 4
Slide 5: Key Takeaways
KEY TAKEAWAYS 1. Family-owned and operated business 2. Largest printer and leading provider of media and marketing activation solutions in Canada 3. 50% of total revenues are related to retailers’ value chain 4. Over 80% of total revenues are linked to advertising and marketing budgets 5 • 1 – O U R
Slide 6: Moving From Entrepreneurial To Canadian Leader
Moving From Entrepreneurial To Canadian Leader 1976 1978 1979 1984 1990’s 2003 2005 2009 2013 Flyers Distribution Publishing Public Acquisitions Newspaper Digital Strategic Acquisitions Corporation Outsourcing Activities Investments Revenues : $2.9M $4.2M $18M $83M $1.6B* $1.9B $2.2B $2.0B $2.1B * 2
Slide 7: Operating In Niche Markets
Operating In Niche Markets > Over 80% of total 2013 REVENUES > 50% of total revenues are revenues are linked to related to retailers’ value advertising and marketing budgets $2.1B chain Business and Education*** $96M National** $262M Local* $705M (1) $347M Retail and Newspapers $882M $1,477M (1) (32
Slide 8: Offering A State-of-the-Art National Printing Network
Offering A State‐of‐the‐Art National Printing Network 26 printing plants (As at February 11, 2014) Quebec British Columbia Beauceville Delta Boucherville Gatineau Newfoundland Montreal (4) Corner Brook Quebec (2) St. John’s St-Hyacinthe Prince Edward Island Ontario Borden-Carlton Markham & Aurora Br
Slide 9: Managing Content & Multi-channel Delivery
Managing Content & Multi‐channel Delivery Reach/Audience Content Delivery We publish owned and branded We deliver content on a number We reach 23 million Canadians content of platforms Priant Product Interactive channels Mobile Web Door-to-door distribution In-store marketing Events 9
Slide 10: Leveraging Strong Customer Relationships
Leveraging Strong Customer Relationships Food Drugstores Newspapers Home Improvement Consumer Products Big Box Publishers 10 • 1 – O U R P RO F I L E
Slide 11: Delivering A Track Record Of Performance
Delivering A Track Record Of Performance REVENUES ($M) CASH FLOW FROM DIVIDENDS PAID PER OPERATIONS ($M) PARTICIPATING SHARE (¢) $2,170 $2,112 $2,097 $373 $2,028 $1,989 $341 57¢ 58¢ $311 $321 49¢ $247 35¢ 32¢ 2009* 2010 2011** 2012 2013*** 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013* * Diveste
Slide 12: Instilling Our Values
Instilling Our Values Innovation Teamwork 1. We challenge the status quo and continuously 1. We work collaboratively with our partners across improve our way of doing things to deliver innovative organizational boundaries to offer relevant and solutions to our customers. integrated solutions to our
Slide 13: Focusing On Corporate Social Responsibility
Focusing On Corporate Social Responsibility EMPLOYEES “For our 2013-2015 plan, we Attract, develop and retain talent identified three pillars to help guide our strategic roadmap: the environment, employees and Maintain and enhance employee health, safety and community. This plan is aligned with
Slide 14: Tracking Stock Price Performance
Tracking Stock Price Performance STOCK PRICE FOR 1 YEAR STOCK PRICE FOR 5 YEARS $18 $18 $17 $16 $16 $15 $14 $14 $12 $13 $12 $10 $11 $8 $10 $9 $6 $8 $4 Feb'09 Feb'10 Feb'11 Feb'12 Feb'13 Feb'14 Intraday high $17.04 $17.15 * Stock price as of February 28th, 2014: $14.91 Intraday low $11.34 $5.58 Avg.
Slide 15: Presenting The Executive Management Team
Presenting The Executive Management Team François Olivier President and Chief Executive Officer Nelson Gentiletti Christine Desaulniers Brian Reid Chief Financial and Chief Legal Officer and President Development Officer Corporate Secretary TC Transcontinental Printing Sylvain Morissette Katya Lavio
Slide 16: Hot Topics
SECTION Hot Topics 16
Slide 17: 1. Organic Revenue Decline in Q1'14
1. Organic Revenue Decline in Q1’14 Q. What is driving the drop of 5% in organic revenues in Q1’14? > Revenue decline stemming from soft advertising market in both Sectors 1. In Printing Sector, volume of marketing products and magazines decreased, as customers reduced number of pages or cancelled o
Slide 18: 2. Canada Post Developments
2. Canada Post Developments Q. What is the impact of Canada Post’s decision to end door-to-door delivery and increase postage costs? > TC Transcontinental is not affected by the changes announced by Canada Post 1. Magazines and direct marketing materials will continue to be delivered to and picked u
Slide 19: 3. Newspaper Outsourcing Contracts
3. Newspaper Outsourcing Contracts Q. What is the effect of contract renegotiations? > New market reality for newspapers creating opportunities for TC Transcontinental 1. Given that these contracts are guaranteed, a penalty would have to be paid if renegotiated (such as La Presse and the San Francis
Slide 20: 4. Acquisition of Sun Media Community Newspapers in Quebec
4. Acquisition of Sun Media Community Newspapers in Quebec Q. Can you provide an update on the acquisition of Sun Media’s community newspapers in Quebec? > In February, the Competition Bureau made a request for additional information in order to complete its review 1. The decision from the Competiti
Slide 21: 5. Current State of Print Markets
5. Current State of Print Markets Q. What is the current pace of decline in print demand across mediums? > 50% of consolidated revenues are in the retail segment where demand remains strong 1. Demand for retail flyer printing remains strong as they drive traffic to the store. However, retailers are
Slide 22: 6. Foreign Exchange Fluctuation
6. Foreign Exchange Fluctuation Q. How will the foreign exchange rate affect financial results going forward? > TC Transcontinental’s foreign exchange exposure is substantially less than in the past 1. We currently have hedges in place that cover about 30% of our U.S. net cash flow at an average rat
Slide 23: 7. Advertising Climate
7. Advertising Climate Q. What is the status of the advertising market in Canada? > Volatile market conditions leading to lack of visibility 1. Soft national and local advertising market for traditional and digital platforms. 2. No pick-up seen for ad markets in the short-term. 3. Advertisers are fr
Slide 24: 8. Media Sector Profitability
8. Media Sector Profitability Q. What is TC Transcontinental doing to improve Media Sector profitability? > The Media Sector profitability will be stabilizing 1. Integrating Sun Media acquisition including $20 million in incremental annualized EBITDA. 2. New multi-million dollar distribution contrac
Slide 25: 9. Growth Going Forward
9. Growth Going Forward Q. How will TC Transcontinental generate growth? > Committed to growth 1. Integrate and grow Capri Packaging acquisition. 2. Develop newspaper outsourcing printing in Canada. 3. Develop other services in retailers’ value chain such as ISM. 4. Grow local digital offering in pa
Slide 26: 10. Capital Allocation
10. Capital Allocation Q. How does TC Transcontinental plan to deploy its cash? > Multipronged approach to capital allocation with a greater focus on acquisitions in 2014 1. Strategic acquisitions are the focus for 2014 (Sun Media ($75M), Capri Packaging (US$133M)). 2. Invest in capex with a project
Slide 27: Strategy
SECTION Strategy 27
Slide 28: Key Takeaways
KEY TAKEAWAYS 1. Print Sector and Media Sector growth is challenging. 2. Strategy is based on strengthening the core, developing new revenue streams and diversifying into non-advertising- based businesses. 3. We have the financial flexibility to pursue our growth. 28 • 3 ‐ S T R AT EG Y
Slide 29: Executing Our Strategy
Executing Our Strategy > Over 80% of consolidated revenues linked to advertising and marketing budgets > Advertising revenues transitioning to digital Print Media Packaging GROWTH • Challenging growth profile • Challenging growth profile • Forecast average growth for PROSPECTS (revenues are expected
Slide 30: Print Sector
SECTION Print Sector 30
Slide 31: Key Takeaways
KEY TAKEAWAYS 1. On track to reach $45M in synergies 2. EBITDA margins over 20% 3. Over 60% of business under contract 4. Backbone of free cash flow story 31 • 4 ‐ P R I N T S EC TO R
Slide 32: Surpassing Expected Printing Sector Synergies
Surpassing Expected Printing Sector Synergies CUMULATIVE SYNERGIES FOLLOWING > Phase 3 started in 2014 and is QUAD/GRAPHICS CANADA, INC. ACQUISITION expected to generate another $5 million (approx.) in synergies $45M+ $40M $35M $31M $19M Quad/Graphics Canada, Inc. acquisition in March $10M $3M $0 Q2
Slide 33: Increasing EBITDA Margin
Increasing EBITDA Margin Quad/Graphics > Margins above 20% Canada, Inc. acquisition % 23.3 20.3 20.3 21.7 20.9 21.0 21.2 18.5 20.3 20.0 20.2 19.6 19.4 18.3 18.4 18.5 17.7 17.3 15.6 14.3 11.9 2009 2010 2011 2012 2013 2014 Note: EBITDA is on an adjusted basis Q1 Q2 Q3 Q4 33 • 4 ‐ P R I N T S EC TO R
Slide 34: Divesting Non-Core Assets
Divesting Non‐Core Assets Divested $400+ million in revenues over the past few years • Sectors more impacted by technology • Non-core operations • Weak long-term growth profile Black & White Mexico U.S. Retail U.S. Direct Mail Rastar Book Printing Operations Operations $248M US$25M $60M $64M US$30M
Slide 35: Developing New Sources of Revenue
Developing New Sources of Revenue In-Store Marketing (ISM): 1. Promising market given existing customer relationships 2. Multiyear contract with Pharmaprix/Shoppers Drug Mart for ISM material 3. Nature of contracts is recurring and long-term 4. Several potential customers on the horizon Today, ISM a
Slide 36: Leveraging Past Investments in Printing Sector
Leveraging Past Investments in Printing Sector > Increasing profitability with less plants ADJUSTED EBIT $225M $222M Quad/Graphics 48 plants Canada, Inc. acquisition + 6 plants 38 plants $200M $198M $180M 29 plants 29 plants 27 plants 26 plants $147M 2009 2010 2011 2012 2013 2014 (LTM) 36 • 4 ‐ P R
Slide 37: Securing Future Cash Flow
Securing Future Cash Flow > Over 60% of our total revenues CONTRACT LENGTH BY SEGMENT are under contract 8% 10% 92% 25% 65% 90% 45% Contract length +10 years 5 to 10 years 75% > 3 to < 5 years 55% 35% 0 to 3 years No contract Retail Newspapers Magazines Distribution & Premedia Marketing Pr
Slide 38: Growing the Printing Sector
Growing the Printing Sector Path to growth actively pursued through multiple opportunities: > Gain additional newspaper outsourcing agreements > Contribution from Quebecor printing contracts for magazines and marketing materials > Continued optimization of the Printing platform > Further develop ISM
Slide 39: Media Sector
SECTION Media Sector 39
Slide 40: Key Takeaways
KEY TAKEAWAYS 1. Media Sector profitability will be stabilizing 2. Making strategic digital investments 3. Investing in strong consumer brands 4. Diversifying in non-advertising-based assets 5. Cutting costs significantly 6. Leveraging Sun Media acquisition 40 • 5 ‐ M E D I A S EC TO R
Slide 41: Stabilizing Profitability
Stabilizing Profitability > Media Sector Adjusted EBIT $92M $89M -50% $62M $54M $38M Anticipated improvement 2009 2010 2011 2012 2013* 2014F * 2013 financial information has been restated to reflect the impact of the adoption of IFRS 11 “Joint Arrangements” and amended IAS 19 “Employee benefits” and
Slide 42: Strengthening Core Assets
Strengthening Core Assets > Acquisition of Sun Media’s 74 community newspapers in Quebec > Gained new distribution agreements > Launched VÉRO magazine > Relaunched core magazine brands 42 • 5 – M E D I A S EC TO R
Slide 43: Developing New Sources of Revenue
Developing New Sources of Revenue 1. Extension of TC Transcontinental websites 2. Web advertising agency 3. Local digital bundle 4. Groupe Modulo 5. TC Media Incubator digital lab 6. iPad magazine app – advertising, subscription 7. Real-time bidding online advertising network (Redux Media) 8. Email
Slide 44: Divesting Non-Core Assets
Divesting Non‐Core Assets Divested non-core operations and publications over the past 2 years • Brands more impacted by migration to digital • Non-core operations • Weak advertising prospects Fresh Juice Distribution & Premium More magazine Vita magazine weeklies in Halifax magazine Nov. 2012 Nov. 2
Slide 45: Leveraging Strong Brands
Leveraging Strong Brands Magazine Web iPad 45 • 5 – M E D I A S EC TO R
Slide 46: Growing the Media Sector
Growing the Media Sector > Contribution from Sun Media newspapers: $20 million in EBITDA on annual basis > New distribution agreements > Diversification into non-advertising- based businesses > Significant cost-cutting 46 • 5 – M E D I A S EC TO R
Slide 47: New Growth Area
SECTION New Growth Area 47
Slide 48: Key Takeaways
KEY TAKEAWAYS 1. Entry into flexible packaging provides future growth path 2. Ability to leverage core manufacturing competency 3. Attractive platform for entry into the flexible packaging business 4. Primary focus is organic growth followed by acquisitions 48 • 6 – N E W G ROW T H A R EA
Slide 49: Acquiring Capri Packaging at a Reasonable Price
Acquiring Capri Packaging at a Reasonable Price Transaction details > Purchase price US$133 million > Annual revenues of US$72 million > Annual EBITDA of US$17 million > Employees: 200 non-unionized > 10-year contract with Schreiber Foods, Inc., accounting for about 75% of Capri’s total revenues > T
Slide 50: Producing a Broad Range of Flexible Cheese and Yogurt Packaging
Producing a Broad Range of Flexible Cheese and Yogurt Packaging > Founded in 1994 > Vertically-integrated supplier of printed flexible packaging > Division of Schreiber Foods, Inc., a US$5 billion employee-owned dairy company, located in Green Bay, Wisconsin > Two facilities located in Clinton, Miss
Slide 51: Providing a Strategic Distribution Hub for Shipping
Providing a Strategic Distribution Hub for Shipping 51 • 6 – N E W G ROW T H A R EA
Slide 52: Introducing the Packaging Spectrum
Introducing the Packaging Spectrum Flexible Packaging fuelled by several industry dynamics including growth in private labels and increasing sustainability practices by CPGs 52 • 6 – N E W G ROW T H A R EA
Slide 53: Focusing on Flexible Packaging
Focusing on Flexible Packaging The U.S. is by far the largest flexible packaging market in North America and the food vertical is the largest consumer end market > Forecast average growth for flexible > The food vertical is the dominant packaging of 2.3% in North America from consumer end market ver
Slide 54: Growing in the Flexible Packaging Area
Growing in the Flexible Packaging Area Future growth opportunities will come both from organic development as well as acquisitions 1. Organic growth is primary focus • Grow through sales development in existing and adjacent markets (other dairy manufacturers, meats foods, bakery products, frozen foo
Slide 55: Financial Situation
SECTION Financial Situation 55
Slide 56: Key Takeaways
KEY TAKEAWAYS 1. Strong balance sheet 2. Significant free cash flow 3. Multipronged approach to capital allocation 56 • 7 ‐ F I N A N C I A L S I T UAT I O N
Slide 57: Spreading Out Debt Maturities
Spreading Out Debt Maturities > Fixed 81% (after hedging) MAIN DEBTS MATURITY SCHEDULE AT JANUARY 31, 2014 (IN C$M) > Variable 19% (after hedging) unused 291 $100M Preferred Shares These shares are redeemable by $400M Transcontinental Inc. on October 15, 2014. Private Placement HVB (amortized 5
Slide 58: Reducing Adjusted Net Indebtedness And Leverage Ratio
Reducing Adjusted Net Indebtedness And Leverage Ratio > Target leverage between 1.0x and 2.0x going forward $903M 2.6x $699M 1.9x $539M 1.5x $471M 1.3x $321M 0.95x $288M 0.85x Notes: * As originally reported ** 2013 financial information has been restated to reflect the impact of the adoption of IFR
Slide 59: Generating Strong Free Cash Flow
Generating Strong Free Cash Flow > Flexibility to grow CAPEX (incl. Intang.) Free Cash Flow $284M $222M $217M* $193M $140M $149M $74M $75M $65M $59M Notes: -$26M Free cash flow is adjusted operating earnings before amortization less the sum of capital expenditures, dividends on participating shares,
Slide 60: Increasing Return On Net Assets
Increasing Return On Net Assets > Increasing return on net assets 8.7% 8.3% 8.1% 8.0% 6.9% 2009 2010 2011 2012 2013 60 • 7 ‐ F I N A N C I A L S I T UAT I O N
Slide 61: Sustaining Dividend Growth
Sustaining Dividend Growth > 5-year CAGR 15% > Yield 4.3% DIVIDENDS PAID PER PARTICIPATING SHARES (as at Feb.28, 2014) ON AN ANNUAL BASIS $0.64 Increased quarterly $0.58* $0.57 dividend by 10% $0.49 $0.35 $0.32 $0.31 $0.28 $0.25 $0.21 $0.17 * Paid special dividend of $1.00 per participating share in
Slide 62: Buying Back Shares
Buying Back Shares > Intention to renew normal course issuer bid when the current program expires in April 2014, subject to regulatory approval. $67M > Will buy back shares opportunistically. $53M $49M No share buybacks $18M $12M $0 2006 2007 2008 2009 2010 2011 2012 2013 YTD 2014 62 • 7 ‐ F I N A N
Slide 63: Conclusion
SECTION Conclusion 63
Slide 64: Conclusion: optimize, invest and diversify
In order to pursue its growth and transformation in Print, Media and Packaging, TC Transcontinental will continue to optimize its platform, invest strategically in its businesses and diversify its model into non- advertising-based assets.
TC Transcontinental — Investor Presentation (April 2014) on 6ix