Transcontinental Inc. Class A · TSX:TCL.A
Transcontinental Inc. Class A — TC Transcontinental — Investor Presentation (April 2012)
69 slides from Transcontinental Inc. Class A's investor presentation, Apr 5, 2012
Slide 1: Generating Synergies & Positioning TC for Growth
GENERATING SYNERGIES & POSITIONING TC FOR GROWTH Investor Presentation April 05, 2012
Slide 2: Forward-Looking Statement
Forward-Looking Statement This presentation contains certain forward-looking statements concerning the future performance of the Corporation. Such statements, based on the current expectations of management, inherently involve numerous risks and uncertainties, known and unknown. We caution that all
Slide 3: Contents
Contents • Key Take-Aways 4 • TC Transcontinental Overview 6 • Market Trends and Conditions 18 • Strategy 24 • Print Sector 31 • Media Sector 40 • Financial Guidance 49 • Investment Case 53 • Appendix 64 – Historical Financials 65 – Case Study - Marketing Activation 67 3
Slide 4: Key Take-Aways
KEY TAKE-AWAYS
Slide 5: Key Take-Aways
Key Take-Aways 1. The Printing sector is currently in the process of leveraging its asset base to generate over $40 million in synergies by <integrating the Quad/Graphics Canada acquisition 2. The Media sector is in the process of moving audiences and revenue from the paper distribution channel to t
Slide 6: TC Transcontinental Overview
TC TRANSCONTINENTAL OVERVIEW
Slide 7: Moving From Entrepreneurial To Canadian Leader
Moving From Entrepreneurial To Canadian Leader 1976 1978 1979 1984 1990s 2003 2005 2011 Revenues: $2.9M Revenues: $4.2M Revenues: $18M Revenues: $82.7M Revenues: $1.8B * Revenues: $1.9B Revenues: $2.2B Revenues: $2.0B • Founded by Rémi • Beginning of flyer • Start of publishing • Transcontinental •
Slide 8: Operating In Niche Markets
Operating In Niche Markets 2011 REVENUES: $2,044M $1,434M $704M PRINTING(1) MEDIA(1) 67% 33% $361 Retail and Newspaper Group $791 Local Community Solutions Group $155 Magazine and Book Group $382 Business and Consumer Solutions Group $ 71 Marketing Products Group $261 Content Solutions Group $ 67 Di
Slide 9: Offering A State-of-the-Art National Printing Network
Offering A State-of-the-Art National Printing Network Salt Lake City, UT St John’s, NL Corner Brook, NL Quebec, QC Borden - Carlton, PEI Edmonton, AB Louiseville, QC Sydney, NS Montreal, QC (3 facilities) Montreal, QC; 2 plants, Montreal, QC Dartmouth, NS: to close in Apr’12 Calgary, AB Saskatoon, S
Slide 10: Managing Content And Multi-Channel Delivery
Managing Content And Multi-Channel Delivery LOCAL COMMUNITY SOLUTIONS BUSINESS AND CONSUMER SOLUTIONS NEWSPAPERS DISTRIBUTION RELATED BUSINESS MAGAZINES CONSUMER MAGAZINES WEB PROPERTIES Local directory Local online auction Community newspapers/ banner ads Online personalized memorial E-flyers and E
Slide 11: Introducing Marketing Activation
INTRODUCING MARKETING ACTIVATION 11
Slide 12: Leveraging Strong Customer Relationships
Leveraging Strong Customer Relationships Food Drugstores Newspapers Home Improvement Consumer Products Department Stores 12
Slide 13: Delivering A Track Record Of Performance
Delivering A Track Record Of Performance Dividends Paid per Revenues ($M) Cash Flow from Operations ($M) Participating Share (¢) $2,429 Divested U.S. $311 $311 $289 $300 49¢ $2,326 Direct Mail Divested $247 ($248M) Mexican 35¢ $2,170 operations 31¢ 32¢ 28¢ $2,092 ($64M) $2,044 2007 2008 2009 2010 20
Slide 14: Stock Price Performance
Stock Price Performance Avg. # of shares: 81M Market cap*: $1,017.4M Public Float: 71.8M Dividend yield*: 4.5% Corporate credit rating: DBRS: BBB high, stable; S&P: BBB, stable $18 Stock Price for 1 year $24 Stock Price for 5 years $17 $16 $19 $15 $14 $14 $13 $12 $9 $11 $10 $4 Intraday high $16.40 $
Slide 15: 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 organizational boundaries to offer relevant and innovative solutions to our customers. integrated solutions to our
Slide 16: Updating The Executive Management Team
Updating The Executive Management Team • François Olivier, President and Chief Executive Officer • Nelson Gentiletti, Chief Financial and Development Officer ** new • Alain Gignac, Chief Marketing Activation Officer ** new • Christine Desaulniers, VP Chief Legal Officer and Corporate Secretary • Syl
Slide 17: Being A Responsible Corporate Citizen
Being A Responsible Corporate Citizen “At TC Transcontinental, we are firmly committed to promoting sustainable development, and we will continue to integrate it into our activities by mobilizing our stakeholders, supporting innovation and reporting our results. I am proud and happy to see how far w
Slide 18: Market Trends and Conditions
MARKET TRENDS AND CONDITIONS
Slide 19: Print Products Are Still Relevant
Print Products Are Still Relevant Rapid growth in Internet $15 billion advertising (15%) market in Canada in 2011 Print products still “relevant” 46% of all marketing and advertising spending 19
Slide 20: Canadian Newspaper Readership Is Growing
Canadian Newspaper Readership Is Growing Newspaper 2011 Readership – 2011 Readership – 2011 Readership – 2011 Readership – Weekday yoy %∆∆ Week-end yoy %∆∆ Weekday Week-end + 5% + 3% 992,000 1,101,000 (National market) + 10% - 3% 436,500 552,400 (Montreal market) + 3% n/a 349,700 n/a (Montreal marke
Slide 21: Internet Penetration Is Growing
Internet Penetration Is Growing Media Penetration in Canada, 2000, 2005 & 2011 (% of population) 2000 2005 2011 Trends TV viewers* 97.9% 97.8% 95.1% Radio listeners* 89.2% 87.6% 82.2% Magazine 81.0% 79.0% 76.4% readers** Internet users* 30.1% 55.1% 71.2% Newspaper 81.4% 77.4% 72.9% readers*** Cable
Slide 22: Mobile Marketing Is The New Trend
Mobile Marketing Is The New Trend Mobile sites and mobile applications have been prioritized as key components of new custom communications toolkits for many brand managers and marketers. U.S. Interactive Spend 2000 2016 CAGR Social Media $1,590 x3 $4,995 26% Email marketing $1,510 x 1.5 $2,468 10%
Slide 23: Increasingly Competitive And Fragmented Market
Increasingly Competitive And Fragmented Market 23
Slide 24: Strategy: Transitioning To A Marketing Activation Company
STRATEGY: TRANSITIONING TO A MARKETING ACTIVATION COMPANY
Slide 25: Following Advertising Dollars
Following Advertising Dollars Generating 80% of Helping to attact, reach Adapting to changes in revenues from and retain targeted the Media landscape advertising budgets customers Transcontinental’s Revenue Sources Advertising Other 80% 20% 25
Slide 26: Building On Existing Assets And Developing The New
Building On Existing Assets And Developing The New BUILDING ON EXISTING ASSETS DEVELOPING THE NEW Printing Media Strengthening Expanding into new Building new Generating synergies existing marketing media channels publishing assets communication solutions (reaching audiences with new platforms) 26
Slide 27: Transitioning To A Marketing Activation Company
Transitioning To A Marketing Activation Company 2008 2012 – 2014 2009 - 2011 A paper-based Becoming a marketing Initiating the transition organization activation company CAPABILITY-CENTRIC PRODUCT CENTRIC CUSTOMER CENTRIC 3 sectors Interactive & digital media Activate national & local o Printing inv
Slide 28: Focusing On Marketing Activation
Focusing On Marketing Activation Marketing Activation is the method used to bring a brand message to life through a strategic, integrated campaign that leverages the full potential of a wide range of marketing communications tools (print, media, interactive and more) in order to maximize results and
Slide 29: Implementing A New Sales Approach
Implementing A New Sales Approach • Become a marketing advisor as opposed to only a product specialist • Introduced a new brand image to: – Reaffirm who we are – Communicate where we are at now and where we are going • Move from selling 2 to 3 products and services to 7 to 10 products and services t
Slide 30: Key Priorities
Key Priorities 1 2 3 4 Expand product Manage the Optimize our Manage our offering and competitive cost structure balance sheet implement a new landscape prudently sales approach Create a more Defend our market Integrate the Continue to reduce cohesive go-to- position in local Quad/Graphics our debt
Slide 31: Print Sector: Generating Growth Through Synergies
PRINT SECTOR: GENERATING GROWTH THROUGH SYNERGIES
Slide 32: Generating Growth Through Synergies
Generating Growth Through Synergies 1 2 3 Manufacturing Integrate Quad/Graphics Develop & Implement Efficiency Canada acquisition the longer term hybrid newspaper / retail platform Optimize asset utilization Generate at least $40M in Ensure that we maximize across entire platform net incremental EBI
Slide 33: Continuing To Optimize Our Footprint
Continuing To Optimize Our Footprint Includes 6 Number of Plants Quad/Graphics Canada plants. By the end of June 2012, there should 54 be only 30 plants 48 given the previously announced closures and consolidations. 38 33 29 2008 2009 2010 2011 2012 YTD 33
Slide 34: Generating Return On Investment
Generating Return On Investment 60 $200 $200 $190 54 50 $180 48 $180 $170 40 38 $160 30 $150 $148 29 $147 $140 20 $130 $120 10 $110 0 $100 2008 2009 2010 2011 Number of Plants Adjusted EBIT in millions 2008 to 2010 data are as previously reported. 34
Slide 35: Increasing EBITDA Margin
Increasing EBITDA * Margin 21.9% 21.0% 20.3% 20.2% 20.2% 19.2% 19.0% 18.9% 18.3% 18.5% 17.6% 15.6% 15.3% 14.3% 13.9% 14.0% 11.9% Q1 Q2 Q3 Q4 2008 2009 2010 2011 2012 * Adjusted 35
Slide 36: Building On Milestones Recently Achieved
Building On Milestones Recently Achieved • Invested over $700 million in our printing network over the last several years • Sold our Mexican operations and black and white book printing business, destined for U.S. export, to Quad/Graphics • Acquired Quad/Graphics Canada • Announced the closure of 50
Slide 37: Integrating Quad/Graphics Canada
Integrating Quad/Graphics Canada • Closed acquisition of Quad/Graphics Canada on March 1st, 2012 • Expected to generate about $230 million in revenues on an annualized basis and net incremental EBITDA of at least $40 million over the next 12 to 24 months • For f2012, we expect to generate about $150
Slide 38: Facing A More Competitive Environment
Facing A More Competitive Environment • Increased contract renewal activity in the retail flyer segment: – Must provide some financial incentives to customers – Allows us to secure the business for the long term – Allows us to introduce new products and services in the contract agreements • Changing
Slide 39: Well Positioned To Be Successful
Well Positioned To Be Successful • National network of printing plants across Canada • Long term contracts ranging from 3 to 18 years with customers who generate 50% to 60% of printing revenues • Invested over $700 million in the printing platform over the past several years • Strong customer relati
Slide 40: Media Sector: Activating The Marketing Strategy Of Our Customers
MEDIA SECTOR: ACTIVATING THE MARKETING STRATEGY OF OUR CUSTOMERS
Slide 41: Leveraging Paid, Owned And Earned Media
Leveraging Paid, Owned And Earned Media It changes the rules of the game not only for marketing specialists, but also for consumers. PAID OWNED EARNED Print, Television, Radio, Brochure, retail stores, Word of mouth, Facebook, Magazines, Cinema, Outdoor, company website, Microsite, Twitter, Digg, Yo
Slide 42: Activating The Marketing Strategy Of Our Customers
Activating The Marketing Strategy Of Our Customers 1 2 3 4 5 National Local Monetize Content Delivery Play Play Digital Play Management Activate custom Activate integrated Develop a viable Develop marketing Develop and marketing programs marketing programs monetization model content (branded or mana
Slide 43: Increasing Our Reach In Canada And Quebec
Increasing Our Reach In Canada And Quebec 22.3 M 5.9 M of consumers in Canada of consumers in Quebec (Adults 18+) (Adults 18+) 83% reach 92% reach 43
Slide 44: Increasing Our Unique Monthly Visitors (UMV)
Increasing Our Unique Monthly Visitors (UMV) Signed many ad network deals 13.7M 11.3M 4.4M 4.2M 3.7M 2008 2009 2010 2011 2012 YTD 44
Slide 45: Managing Content And Multi-Channel Delivery
Managing Content And Multi-Channel Delivery STRATEGY CONTENT DELIVERY RETENTION & LOYALTY Business Create, manage Multi-channel Loyalty programs objectives and optimize Retail flyer Consumer Competition and content (printed & online) engagement markets Content must be Web and email Consumers Consume
Slide 46: Generating New Revenue Streams
Generating New Revenue Streams $193.7 M $183.0 M $170.3 M $78.0 M 2008 2009 2010 2011 Note: Includes digital solutions, content solutions and digital printing. 46
Slide 47: Understanding Our Growth Challenge
Understanding Our Growth Challenge • Marketing dollars are not moving as fast as we anticipated to all the new platforms (CMO’s spend about 10% of their marketing budget on new communication solutions, inline with TC’s numbers) • Intense competition in local community solutions (community newspapers
Slide 48: Well Positioned To Be Successful
Well Positioned To Be Successful • Capacity to deliver audiences – Transcontinental has over 1,000 web sites that reach over 13 million Unique Visitors – Transcontinental’s network is # 1 in the Women category reaching over 4.5 million Canadians • Strong brands that are known and trusted • National
Slide 49: Financial Guidance
FINANCIAL GUIDANCE
Slide 50: Financial Guidance – Income Statement
Financial Guidance – Income Statement • Quad revenues: $230 million annualized of which about $150 million in f2012 • Canadian Tire new contract: $30 to $40 million in annualized revenues (started in January 2012) • Corporate costs: in line with f2011 (variability on stock-based compensation) • Book
Slide 51: Financial Guidance – Income Statement
Financial Guidance – Income Statement • Synergies: – $40 million in net incremental EBITDA from Quad/Graphics Canada acquisition over the next 12 to 24 months (between $5 to $10 million in f2012; the bulk in f2013; full run rate in f2014) – $10 million in synergies in the Media sector ($2-$3 million
Slide 52: Financial Guidance – Cash Flow
Financial Guidance – Cash Flow • Capex expected to be $75 million in f2012 (including Quad/Graphics Canada) • In Q2-12, we returned $50 million we had received from Quad/Graphics Canada, which was to be paid back at the closing of the Canadian transaction • Payment of tax re-assessment of $58 millio
Slide 53: Investment Case
INVESTMENT CASE
Slide 54: Generating Organic Revenue Growth
Generating Organic Revenue Growth Consolidated Organic Revenue Growth (1,2) (in millions of dollars) Bulk of the $16.0 $16.2 impact from $13.7 the end of $11.6 $10.3 the Census $7.4 contract -$17.0 -$17.2 -$20.7 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11(3) Q4-11(3) Q1-12(3) (1) Growth in revenues ex
Slide 55: Increasing Cash Flow
Increasing Cash Flow Announced the consolidation of the production activities of Announced a Litho Acme and Direct Montreal plants multi-phase integration plan with the closure of 2 plants Announced Announced (Dartmouth & closure of closure of Spot RDP) and 1 Boucherville plant Graphics plant premed
Slide 56: Reducing CAPEX
Reducing CAPEX Investments in our hybrid platform $257M $229M $155M $130M $125M $114M $75M $47M 2005 2006 2007 2008 2009 2010 2011 2012E 56
Slide 57: Reducing Net Indebtedness
Reducing Net Indebtedness $908.0M $903.0M $738.0M $698.8M $539.4M 2007 2008 2009 2010 2011 Note: Including securitization. 2011 is adjusted to exclude the amount to be paid to Quad/Graphics following the closing of the transaction to acquire the shares of Quad/Graphics Canada, Inc. 57
Slide 58: Reducing Leverage
Reducing Leverage To increase slightly in the coming quarters as we incur costs related to our investments in 3.4x the Quad/Graphics Canada integration. We 3.3x should then see this ratio improve once we 3.2x begin to realize the benefits of the integration. 2.6x 2.6x 2.4x 2.1x 2.1x 1.9x 1.9x 1.8x 1
Slide 59: Spreading Out Debt Maturities
Spreading Out Debt Maturities New facility put in place on Feb. 20th, 2012 Securitization program currently $148 M was unused 400 (in millions C$) drawn as at Jan. 31st, 2012 200 200 13 50 13 75 50 13 50 6 15 10 2012 2013 2014 2015 2016 & thereafter Private Placement HVB (amortized 5 years) Solidari
Slide 60: Sustaining Dividend Growth
Sustaining Dividend Growth Dividends Paid per Participating Share 58¢ on an annualized 57¢ basis 49¢ Dividend Yield(1): 4.5% Payout ratio per cash flow(2): 14.8% 35¢ Payout ratio per free cash flow(3): 19.6% 31¢ 32¢ 28¢ 25¢ 21¢ 17¢ 14¢ 12¢ 10¢ 10¢ 8¢ 8¢ 6¢ 6¢ 6¢ 6¢ 6¢ 1993 1994 1995 1996 1997 1998 1
Slide 61: Buying Back Our Stock
Buying Back Our Stock Share Buybacks 3.5 $67.2 2.9 $53.1 2.5 $48.7 No share NCIB buybacks Planned 2006 2007 2008 2009 2010 2011 2012 Number of shares repurchased (in millions) Value of repurchases (in millions) 61
Slide 62: Increasing Return On Net Assets
Increasing Return On Net Assets Return On Net Assets 11.3% 11.2% WACC: 9% 9.5% 8.8% Investments in our hybrid platform 8.7% 8.0% 8.0% 7.7% 6.9% 2003 2004 2005 2006 2007 2008 2009 2010 2011 62
Slide 63: Diversifying Revenue Streams
Diversifying Revenue Streams MOVES IN SYNCH WITH THE ECONOMIC CYCLES Marketing Products 11% Retail and Newspaper Printing 37% LONG TERM CONTRACTS Community Newspapers LOCAL ADVERTISING Publishing WITH LARGE CUSTOMERS 11% REPRESENTS MORE THAN 50% Book Printing 7% NON ADVERTISING Flyer Distribution Ma
Slide 64: Appendix
APPENDIX
Slide 65: Financials
Financials t @ TRANSCONTINENTAL A MARKETING ACTIVATION COMI >
Slide 66: Segmented Information
Segmented Information 2011 2012 (in millions of dollars), Unaudited Q1 Q2 Q3 Q4 Year Q1 Revenues Printing sector $ 374.1 $ 352.2 $ 335.5 $ 371.9 $ 1,433.7 $ 354.3 Media sector 159.2 171.3 175.5 197.7 703.7 158.5 Other activities and unallocated amounts 2.1 2.0 2.1 1.9 8.1 2.2 Inter-segment sales (20
Slide 67: Case Study
Case Study t @ TRANSCONTINENTAL >
Slide 68: One Content, Multiple Platforms
One Content, Multiple Platforms 68
Slide 69: Slide 69
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