Transcontinental Inc. Class A · TSX:TCL.A
Transcontinental Inc. Class A — TC Transcontinental — Investor Presentation (September 2013)
63 slides from Transcontinental Inc. Class A's investor presentation, Sep 18, 2013
Slide 1: Growth by Developing Retailers' Value Chain
I N V E S T O R P R E S E N TAT I O N September 18, 2013 Growth by Developing Retailers’ Value Chain
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 26 SECTION 4 Retail Segment 33 SECTION 5 Print Sector 39 SECTION 6 Media Sector 47 SECTION 7 Financial Situation 54 SECTION 8 Conclusion 62 3
Slide 4: Our Profile
SECTION 1 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. Over 40% of total revenues are related to retailers’ value chain 5 • 1 – O U R P RO F I L E
Slide 6: Moving From Entrepreneurial To Canadian Leader
Moving From Entrepreneurial To Canadian Leader 1976 1978 1979 1984 1990’s 2003 2005 2009 2012 Flyers Distribution Publishing Public Acquisitions Newspaper Digital Strategic Acquisitions Corporation Outsourcing Activities Investments Revenues : $2.9M $4.2M $18M $83M $1.8B* $1.9B $2.2B $2.0B $2.1B 30
Slide 7: Operating In Niche Markets
Operating In Niche Markets 2012 REVENUES > Retail-related revenues : $2.1B over 40% Business and Education*** $93M National** $253M Local* $712M (1) $366M Retail and Newspapers $885M $1,480M (1) (32%) (68%) Commercial Products $265M (1) Excludes intercompany eliminations. Magazines * Newspapers, Dis
Slide 8: Offering A State-of-the-Art National Printing Network
Offering A State-of-the-Art National Printing Network 27 printing plants (As at July 31, 2013) Quebec British Colombia Beauceville Delta Boucherville Gatineau Newfoundland Montreal Corner Brook Quebec (2) St. John’s St-Hyacinthe Prince Edward Island Ontario Borden-Carlton Aurora Brampton Nova Scotia
Slide 9: Managing Content & Multi-channel Delivery
Managing Content & Multi-channel Delivery Reach/Audience Content Delivery We publish owned and branded We deliver content on a number We reach 24 million Canadians content of platforms Print products Interactive channels Mobile Web Door-to-door distribution Point-of-sale materials Events Television
Slide 10: Leveraging Strong Customer Relationships
Leveraging Strong Customer Relationships Food Drugstores Newspapers Home Improvement Consumer Products Big Box Publishers 10 • 1 – O U R P RO F I L E
Slide 11: Delivering A Track Record Of Performance
Delivering A Track Record Of Performance REVENUES ($M) CASH FLOW FROM DIVIDENDS PAID PER OPERATIONS ($M) PARTICIPATING SHARE (¢) $2,429 $2,170 $2,112 $373 57¢ $2,028 $1,989 $311 $321 49¢ $297 $247 35¢ 31¢ 32¢ 2008 2009* 2010 2011** 2012 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 * Divested U.
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 Sustainable Development
Focusing On Sustainable Development GOVERNANCE “To continue our progress in our “We believe that promoting women in positions of influence brings a Sustainable Development, we need competitive advantage to our organization.” to simplify our operations, encourage Isabelle Marcoux – Chair of the Board
Slide 14: Tracking Stock Price Performance
Tracking Stock Price Performance STOCK PRICE FOR 1 YEAR STOCK PRICE FOR 5 YEARS $14 $18 $13 $16 $14 $12 $12 $11 $10 $10 $8 $9 $6 $8 $4 Aug'08 Aug'09 Aug'10 Aug'11 Aug'12 Aug'13 Intraday high $13.69 $17.25 * Stock price as of August 30th, 2013: $13.69 Intraday low $7.97 $5.88 Avg. volume 110 532 129
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 2 Hot Topics 16
Slide 17: Organic Revenue Decline in Q3'13
1. Organic Revenue Decline in Q3’13 Q. What is driving the drop of 4.5% in organic revenues in Q3’13? > More than half of the drop is not related to the state of the market 1. End of Zellers flyer printing and distribution contract due to store closings. 2. Change in paper format and grade used by o
Slide 18: Print Sector Synergies
2. Print Sector Synergies Q. What is the status of the synergies linked to the Quad/Graphics Canada integration? > Expected to surpass initial synergies target of $40 million 1. Over $35 million in cumulative synergies realized since Quad/Graphics Canada acquisition in March 2012. Another $5 million
Slide 19: Newspaper Outsourcing Contracts
3. Newspaper Outsourcing Contracts Q. Do you expect to renegotiate the Globe and Mail and La Presse contracts? > Current newspaper environment creates opportunities for TC Transcontinental 1. Given that these contracts are guaranteed, a penalty would have to be paid if renegotiated. 2. Given the evo
Slide 20: Current State of Print Markets
4. Current State of Print Markets Q. What is the current pace of decline in print demand across mediums? > Over 40% 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
Slide 21: Retail Consolidation in Canada
5. Retail Consolidation in Canada Q. How is TC Transcontinental impacted by the recent retail consolidation in Canada? > TC Transcontinental has established strong relationships with national retailers across Canada 1. Elevated consolidation activity in Canada as retailers respond to U.S. entrants a
Slide 22: Advertising Climate
6. Advertising Climate Q. What is the status of the advertising market in Canada? > Volatile market conditions leading to lack of visibility 1. Soft national advertising market across all verticals. 2. Soft local advertising market. 3. Digital advertising growth is slowing as well. 4. No pick-up see
Slide 23: Media Sector Profitability
7. Media Sector Profitability Q. What is TC Transcontinental doing to improve Media sector profitability? > Soft advertising market is not helping profitability 1. Changed leadership of Media sector. 2. Tighter focus on dealing with underperforming assets. 3. Addressing current cost structure. 4. Mo
Slide 24: Growth Going Forward
8. Growth Going Forward Q. How will TC Transcontinental generate growth? > Committed to growth 1. Continue to develop the current portfolio – Marketing Activation and digital media principally focused on retailers’ value chain. 2. Grow local digital offering. 3. Develop other services in retailers’
Slide 25: Capital Allocation
9. Capital Allocation Q. How does TC Transcontinental plan to deploy its cash? > Multipronged approach to capital allocation 1. Dividend growth 2. Share buybacks 3. Strategic acquisitions 4. Debt reduction 25 • 2 - H OT TO P I C S
Slide 26: Strategy
SECTION 3 Strategy 26
Slide 27: Key Takeaways
KEY TAKEAWAYS 1. Print accounts for a sizeable share of total marketing and advertising spend in Canada – 42% in 2012 2. Internet advertising is growing rapidly and is expected to account for 29% of marketing spend in 2014 3. Our strategy is to strengthen our core assets and develop new revenue stre
Slide 28: Responding to Changing Ad Trends
Responding to Changing Ad Trends 80% of TC Transcontinental’s revenue is linked to advertising 2 trends are driving advertising: > New Platforms (digital) > Personalisation (vs. mass marketing) Our strategy: > Strengthen our core assets > Develop new revenue streams 28 • 3 - S T R AT EGY
Slide 29: Recognizing That Print Is Still a Relevant Medium
Recognizing That Print Is Still a Relevant Medium > 42% of marketing and advertising ADVERTISING SPEND IN CANADA (2012) $15.2B spend is in print Out of home 3% Newspapers Radio 12% 11% Local newspapers and directories 15% TV 24% Magazines (consumer & business) 5% Direct mail and catalogs Mobile 8% 1
Slide 30: Forecasting Internet Advertising to Grow Significantly
Forecasting Internet Advertising to Grow Significantly > Print marketing and advertising spend is moving from $4.4B in 2012 PWC OUTLOOK: ADVERTISING IN CANADA (CAD$M) to $3.8B in 2017 $17,117 $16,312 Internet growing $15,547 $14,842 $14,173 Magazines holding $13,620 steady $13,177 $12,419 $12,587 $1
Slide 31: Executing our Strategy
Executing our Strategy > OUR MISSION Help companies attract, reach and retain their target customers M A R K E T I N G A C T I VAT I O N > OUR VISION Creation of integrated marketing programs Become a North American leader in marketing triggered by consumer insight, propelled communications by conte
Slide 32: Creating Value Across the Media Chain
Creating Value Across the Media Chain Data Insight Content Creation Deployment > Analysis of consumer > Proprietary > Print Product profiles and trends > Mass Content > Interactive Channels > Pre-purchase and > Custom or Personalised > Mobile post-purchase consumer Content data analysis > Web > Rela
Slide 33: Retail Segment
SECTION Retail 4 Segment 33
Slide 34: Key Takeaways
KEY TAKEAWAYS 1. Over $900 million of TC Transcontinental’s total revenues (over 40%) are linked to retailers’ value chain including premedia, printing,distribution, eflyer, digital marketing,etc. 2. Flyers are an absolute driver of traffic to the store – retailers’ vehicles for reach and frequency
Slide 35: Understanding the Retail Flyer Business at TC Transcontinental
Understanding the Retail Flyer Business at TC Transcontinental 1. Over $900 million in total revenues (over 40%) are linked to retail flyer market including premedia, printing,distribution, eflyer, digital marketing, etc. 2. Typically 3-6 year exclusivity contracts. 3. TC Transcontinental has strong
Slide 36: Acknowledging the Relevancy of Retail Flyers
Acknowledging the Relevancy of Retail Flyers 1. Flyers are an absolute driver of traffic to the store - retailers’ vehicles for reach and frequency. 2. Flyers are a key pillar of consumers’ household savings strategy. 3. Print flyers work, with the majority of Canadians relying on retail flyers for
Slide 37: Examining Retail Flyer Trends
Examining Retail Flyer Trends 1. Circulation and frequency remain steady – retailers want to stay highly visible to the consumer. Page count is a potential variable that could be negatively impacted as retailers adjust their strategies. 2. Increased flyer versioning. 3. Retail lines being blurred as
Slide 38: Promoting the Use of Retail Flyers
Promoting the Use of Retail Flyers Retailers Addressing the Importance of Flyers “ We are well aware that the flyer is an important tool for how Canadians shop,” Lisa Gibson, Target Canada spokeswoman. For the inaugural flyer in this country, “we wanted to drive home our focus on pricing and design
Slide 39: Print Sector
SECTION 5 Print Sector 39
Slide 40: Key Takeaways
KEY TAKEAWAYS 1. On track to surpass $40M in synergies 2. EBITDA margins back over 20% 3. Over 60% of business under contract 4. Backbone of free cash flow story 40 • 5 - P R I N T S EC TO R
Slide 41: Surpassing Expected Printing Sector Synergies
Surpassing Expected Printing Sector Synergies > Phase 3 to start in 2014 and CUMULATIVE SYNERGIES FOLLOWING 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 $13M March $3M $0 Q2'2
Slide 42: Increasing EBITDA Margin
Increasing EBITDA Margin Quad/Graphics Canada, Inc. acquisition > Margins back above 20% % 20.4 20.3 21.7 20.9 21.0 21.2 20.3 20.0 20.2 19.6 19.4 18.3 18.4 18.5 17.4 17.7 15.6 14.3 11.9 2009 2010 2011 2012 2013 Q1 Q2 Q3 Q4 NOTE: EBITDA is on an adjusted basis 42 • 5 - P R I N T S EC TO R
Slide 43: Divesting Less Core Assets
Divesting Less Core Assets Divested $300 million in revenues over the past 4 years • Sectors more impacted by technology • Non-core operations • Weak long-term growth profile Black & White U.S. Direct Mexico operations Book Printing Marketing 43 • 5 - P R I N T S EC TO R
Slide 44: Developing New Sources of Revenues
Developing New Sources of Revenues Point of Purchase Material (POP): 1. Promising market given existing customer relationships 2. New multiyear contract with Pharmaprix/Shoppers Drug Mart for POP material 3. Nature of contracts is recurring and long-term 4. Several potential customers on the horizon
Slide 45: Leveraging Past Investments
Leveraging Past Investments > Increasing profitability ADJUSTED EBIT – PRINTING SECTOR with less plants 54 plants Quad/Graphics Canada, Inc. $215M acquisition + 6 48 plants plants $200M 38 plants $198M $180M 29 29 plants plants 27 plants $148M $147M 2008 2009 2010 2011 2012 2013 (LTM) 45 • 5 - P R I
Slide 46: Securing Future Cash Flow
Securing Future Cash Flow > Close to 60% of our total revenues CONTRACT LENGTH BY SEGMENT are under contract 8% 10% 92% 25% 65% Contract length 90% 45% +10 years 5 to 10 years > 3 to < 5 years 75% 55% 0 to 3 years 35% No contract Note: 2013 estimated distribution. Estimated revenues pro- Retail News
Slide 47: Media Sector
SECTION 6 Media Sector 47
Slide 48: Key Takeaways
KEY TAKEAWAYS 1. Close to 25% of total ad revenues are web-based 2. Many changes of leadership roles at the top 3. Creation of new digital product development lab 4. Many opportunities to continue to optimize cost structure 48 • 6 - M E D I A S EC TO R
Slide 49: Developing New Revenue Sources
Developing New Revenue Sources 1. Extension of TC Transcontinental websites – 4.5M UMVs (display advertising) 2. Web advertising agency – 15M UMVs 3. iPad magazine app – advertising, subscription 4. Real-time bidding online advertising network (Redux Media) 5. Email marketing 6. Eflyer 7. Mobile 8.
Slide 50: Monetizing New Revenue Sources
Monetizing New Revenue Sources > TC Transcontinental’s new sources DIGITAL AND INTERACTIVE REVENUES of revenue increased from $78M in 2008 to $198M in 2012 $194M $198M $183M $170M $78M Note: Includes digital solutions, content solutions and digital 2008 2009 2010 2011 2012 printing 50 • 6 - M E D I
Slide 51: Growing Digital Advertising Revenues
Growing Digital Advertising Revenues > Close to 25% of total ad revenues ADVERTISING REVENUES ACCOUNT FOR MORE THAN 50% OF MEDIA SECTOR REVENUES are web-based Digital 25% Traditional 75% 51 • 6 - M E D I A S EC TO R
Slide 52: Launching New Digital Product Development Lab
Launching New Digital Product Development Lab Demonstrates TC Media’s commitment to being a Canadian leader in the development of digital products. > Laboratory to oversee creation, development and incubation of TC Media’s new digital products. > Will reduce time to market for new digital products a
Slide 53: Introducing Recent Digital Initiatives
Introducing Recent Digital Initiatives AutoGo.ca • For drivers looking for a new or used vehicle, anywhere across Canada. • Large inventory of more than 1,400 car dealers and 70,000 cars for sale in Canada. • 30,000+ unique visits in just one month of marketing. JobGO.ca • Launched with Brunswick Ne
Slide 54: Financial Situation
SECTION Financial 7 Situation 54
Slide 55: Key Takeaways
KEY TAKEAWAYS 1. Strong balance sheet 2. Significant free cash flow 3. Multipronged approach to capital allocation 55 • 7 - F I N A N C I A L S I T UAT I O N
Slide 56: Spreading Out Debt Maturities
Spreading Out Debt Maturities > Fixed 62% (after hedging) MAIN DEBTS MATURITY SCHEDULE AT JULY 31, 2013 (IN C$M) > Variable 38% (after hedging) used 205 $400M Private Placement HVB (amortized 5 years) unused 195 Solidarity Fund Debenture (10 years) Solidarity Fund Debenture (5 years) Revolving Credi
Slide 57: Reducing Net Indebtedness And Leverage Ratio
Reducing Net Indebtedness And Leverage Ratio > Target leverage between 1.0x and 2.0x going forward $908M $903M 2.6x 2.6x $699M 1.9x $539M 1.5x $471M 1.3x $377M $367M $334M 1.1x 1.0x 0.9x Note: Including securitization. 2011 is adjusted to exclude the amount to be paid to Quad/Graphics following the
Slide 58: Generating Strong Free Cash Flow
Generating Strong Free Cash Flow > Flexibility to grow CAPEX Free Cash Flow $257M $220M $229M $194M $141M $125M $49M $70M $47M $37M -$27M Free cash flow is adjusted operating income before amortization less the sum of capital expenditures, dividends on participating shares, dividends on preferred sh
Slide 59: Increasing Return On Net Assets
Increasing Return On Net Assets > Increasing return on net assets 11.2% 11.0% 9.5% Investments in 8.8% our hybrid 8.8% 8.7% platform 8.0% 8.0% 7.7% 6.9% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 59 • 7 - F I N A N C I A L S I T UAT I O N
Slide 60: Sustaining Dividend Growth
Sustaining Dividend Growth > Yield 4.2% DIVIDEND PAID PER PARTICIPATING SHARES ON AN ANNUAL BASIS (as at Aug.30, 2013) $1.58* $0.57 $0.49 $0.35 $0.31 $0.32 $0.25 $0.28 $0.21 $0.17 $0.14 * Paid a special dividend of $1.00 and expected payment of a regular dividend of $0.58. 2003 2004 2005 2006 2007 2
Slide 61: Buying Back Shares
Buying Back Shares > Renewed normal course issuer bid for one year. $67M $53M $49M No share buybacks $18M $12M 2006 2007 2008 2009 2010 2011 2012 YTD 2013 61 • 7 - F I N A N C I A L S I T UAT I O N
Slide 62: Conclusion
SECTION 8 Conclusion 62
Slide 63: Leveraging strong customer relationships to grow share of wallet
TC Transcontinental will leverage its strong customer relationships to further grow its share of wallet with large retailers through an unparalleled offering of print and digital solutions.
TC Transcontinental — Investor Presentation (September 2013) on 6ix