Transcontinental Inc. Class A · TSX:TCL.A
Transcontinental Inc. Class A — Investor Presentation (April 2015)
67 slides from Transcontinental Inc. Class A's investor presentation, Apr 7, 2015
Slide 1: Investor Presentation: Leveraging Our Core Manufacturing Competency and FCF for Growth
I N V E S T O R P R E S E N TAT I O N April 7, 2015 LEVERAGING OUR CORE MANUFACTURING COMPETENCY AND FCF FOR GROWTH
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 17 SECTION 3 Leading Printer in Canada 27 SECTION 4 Diversifying into Packaging 34 SECTION 5 Largest Publisher and Distributor of Local Media in Quebec 40 SECTION 6 Financial Situation 47 SECTION 7 Top Ten Reasons to Invest 55 3
Slide 4: Our Profile
SECTION 1 Our Profile 4
Slide 5: Moving From Entrepreneurial To Canadian Leader
Moving From Entrepreneurial To Canadian Leader > 30 employees 8,500 employees Acquisitions Public Newspaper Digital Flyers Distribution Publishing Acquisitions and Corporation Outsourcing Activities Consolidation 1976 1978 1979 1984 1990’s 2003 2005 2009 - 2014 $2.9M $4.2M $18M $83M $1.6B $1.9B $2.2
Slide 6: Operating in Two Sectors
Operating in Two Sectors 2014 Revenues : $2.1B + $42M from Capri Packaging Printing and (≈ US$72M annualized) Packaging : (1) $1,452M 68% - ≈ $95M consumer’ magazines divested(2) Media :$694M (1) ≈ $50M revenues from Sun Media + (annualized) Note 1: Excludes intercompany eliminations Note 2: On Marc
Slide 7: Focusing on Selected Markets
Focusing on Selected Markets 2014 Revenues : $2.1B Packaging $42M Magazines and Books $341M Retail and Newspapers $835M Marketing Products $234M $109M Consumer Solutions $108M $94M Interactive Marketing $383M Local Solutions Business Solutions and Education 7 • 1 – O U R P RO F I L E
Slide 8: Diversifying Away From Advertising-based Revenues
Diversifying Away From Advertising-based Revenues > Acquired a supplier of flexible packaging solutions (May’04) ≈ US$72M > Divested consumers magazines (Closure expected in Apr.’15) ≈ C$95M 2014 Revenues : $2.1B 80% 20% Advertising- Non-Advertising Based Based Revenues Revenues • Book printing • Bo
Slide 9: Relying on Retail Flyers for Repetitive Cash Flow
Relying on Retail Flyers for Repetitive Cash Flow > Retail flyers is a contractual and repetitive business 2014 Revenues : $2.1B Retail Flyer Printing & ISM (in- Balance of TC Transcontinental store marketing), $583M Revenues Close to 50% of consolidated Distribution, $140M revenues are Interactive
Slide 10: Leveraging Strong Customer Relationships
Leveraging Strong Customer Relationships FOOD DRUGSTORE HOME IMPROVEMENT BIG BOX NEWSPAPER PUBLISHERS BOOK AND MAGAZINE PUBLISHERS FOOD MANUFACTURERS 10 • 1 – O U R P RO F I L E
Slide 11: Delivering A Track Record Of Performance
Delivering A Track Record Of Performance REVENUES ($M) CASH FLOW FROM DIVIDENDS PAID PER OPERATIONS* ($M) PARTICIPATING SHARE (¢) 373 63¢ 348 58¢ 321 327 57¢ 2,028 2,112 2,097 2,069 311 1,989 49¢ 35¢ 2010 2011* 2012 2013** 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013* 2014 * Divested Mexican op
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 “For our 2013-2015 plan, we identified three pillars to help guide our strategic roadmap: the environment, employees and community. This plan is aligned with our corporate strategy and is aimed at supporting our operational goals.” François Olivier Preside
Slide 14: Tracking Stock Price Performance
Tracking Stock Price Performance TCL.A on the TSX Stock Price : 1 Year Stock Price : 5 Years $18 $18 $16 $16 $14 $14 $12 $10 $12 $8 $10 Apr, May, Jun, Jul, Aug, Sep, Oct, Nov, Dec, Jan, Feb, Mar, Apr, $6 14 14 14 14 14 14 14 14 14 15 15 15 15 Apr, 10 Apr, 11 Apr, 12 Apr, 13 Apr, 14 Apr, 15 Intraday
Slide 15: Presenting The Executive Management Team
Presenting The Executive Management Team François Olivier President and Chief Executive Officer Brian Reid Nelson Gentiletti Christine Desaulniers President, Chief Financial and Chief Legal Officer and TC Transcontinental Printing & Development Officer Corporate Secretary TC Transcontinental Packagi
Slide 16: Re-Shuffling our Portfolio in 2015
Re-Shuffling our Portfolio in 2015 25% Of revenues in the portfolio mix impacted Diversification (Packaging) Consolidation (Local Solutions) Strategic Withdrawal (Consumer Solutions) 16 • 1 – O U R P RO F I L E
Slide 17: Hot Topics
SECTION 2 Hot Topics 17
Slide 18: Key Takeaways
KEY TAKEAWAYS 1 Diversification into Packaging 5 Foreign exchange impact on operations Sale of consumer 2 magazines 6 Increased cash taxes Dividends and share 3 Acquisition of Sun Media weeklies in Quebec 7 buybacks Impact of recent market 4 State of retail market 8 transactions on operations 18 • 2
Slide 19: Diversification into Packaging
Diversification into Packaging • Acquired Capri Packaging in May 2014 • Estimated revenues of US$ 72M and EBITDA of US$17 M annualized. • Purchase price of US$ 133M. • Integration process very successful. • After three quarters, results are in line with expectations: revenues of C$67M and Adj. EBITD
Slide 20: Sale of Consumer Magazines
Sale of Consumer Magazines • Announced on Nov. 17, 2014 the sale of 15 consumer magazines to TVA Group Inc. as we felt we did not have the asset base to be a consolidator • Selling price of $55.5M, a portion of which will be taxed. • Signed an agreement with TVA Group Inc. to print these magazines a
Slide 21: Acquisition of Sun Media Weeklies in Quebec
Acquisition of Sun Media Weeklies in Quebec • Announced acquisition in December 2013 with expected synergies of $20M. • Continue to provide relevant information to communities. • Further develop a multiplatform offering for advertisers. • Since the acquisition closed on June 2nd, 2014, the weeklies
Slide 22: State of Retail Market
State of Retail Market • Retail flyer segment transitional slowdown in Q1-2015: • Lost a portion of volume from a U.S. retail customer which has since been replaced with another U.S. retailer (starting Q2’2015). • Softer Canadian market as some customers cut back on spending after a quieter holiday
Slide 23: Foreign Exchange Impact on Operations
Foreign Exchange Impact on Operations • Exports to the U.S. were C$115M in 2014. • Generated revenues of C$142M in the U.S. in 2014. • 1¢ variation in FX rate between the U.S. and Canadian dollar is expected to be about C$600K on profitability (on an annualized basis) • Hedging: as at October 31st,
Slide 24: Increased Cash Taxes
Increased Cash Taxes • Tax loss carry forwards related to our Quad acquisition were fully used. • Paid $41M in cash taxes in Q1’2015, representing a combination of tax payments for 2014 and tax installments for 2015. • For 2015, expect to pay about $50M in cash taxes. • For 2016, expect to pay highe
Slide 25: Dividends and Share Buybacks
Dividends and Share Buybacks • Increased the dividend by 6% in Q1’2015 to 68¢ on an annualized basis. • Dividend yield of 3.9% as at April 6, 2015. • Looking into renewing the share buyback program in April 2015 when it expires, which we would use opportunistically. • Our capital allocation objectiv
Slide 26: Impact of Recent Market Transactions on Operations
Impact of Recent Market Transactions on Operations In the news Impact on TC RRD’s acquisition of Courier • Opportunity to gain additional book volume as customers want multiple suppliers. Post Media’s acquisition of Sun Media • Opportunity to further develop our 8 (mostly titles in Ontario) outsourc
Slide 27: Leading Printer in Canada
SECTION Leading Printer 3 in Canada 27
Slide 28: Offering A State-of-the-Art National Printing Network
Offering A State-of-the-Art National Printing Network 24 printing plants (As at April 7, 2015) 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 Brampt
Slide 29: Minimizing Capital Investment Going Forward
Minimizing Capital Investment Going Forward > Close to $800M invested in capex between 2007 and 2010 CAPITAL EXPENDITURES (INCL.INTANGIBLE ASSETS) ≈ $200M on avg. / year $284M + $130M of $260M cash created $166M ≈ $70M on avg. / year $159M $149M $144M $74M $75M $65M $59M $62M 2005 2006 2007 2008 200
Slide 30: Divesting Non-Core Assets
Divesting Non-Core Assets > Changed the revenue profile of the sector with over $400 million in revenues divested REVENUES OF DIVESTED OPERATIONS U.S. retail US$30M operations $30M 30 M$ $248M Black & white U.S. direct Book printing mail 60$60M M$ 248 M$ U.S personalized Mexican operations print 64
Slide 31: Increasing EBITDA Margins Above 20%
Increasing EBITDA Margins Above 20% > Industry-leading EBITDA margins Integration of 21.9% Quad/Graphics 21.5% Canada, Inc. 20.5% 20.3% 19.6% 19.2% Financial crisis and recession 15.5% 2009 2010 2011 2012 2013* 2014 2015 (LTM) * 2013 figures have been restated to take into account the effects of ame
Slide 32: Optimizing the Printing Platform
Optimizing the Printing Platform > Increasing profitability with less plants $1.5B Stable Revenues $1.4B 54 plants ADJUSTED EBIT 48 plants $228 $230 38 $222M plants + $82M $198M $200M i.e. 29 29 $180M plants plants 27 26 55% plants 24 plants plants $148M $147M 2008 2009 2010 2011 2012 2013* 2014** 2
Slide 33: Maintaining Profitability Going Forward
Maintaining Profitability Going Forward 1 Continue to optimize the printing platform 2 Leverage contribution from Quebecor printing agreements for magazines, books and marketing materials 3 Gain additional newspaper outsourcing agreements 4 Develop in-store marketing (ISM) opportunity 33 • 3 – L EA
Slide 34: Diversifying into Packaging
SECTION Diversifying into 4 Packaging 34
Slide 35: Capri Packaging Transaction Details
Capri Packaging 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 > Transaction closed on May 3, 2014
Slide 36: Building a Packaging Manufacturing Network
Building a Packaging Manufacturing Network > Leveraging manufacturing competencies Transcontinental Capri 1 912 East Nusbaum Place Clinton, MO 64735 • Built in 1994 • 56,000 sq.ft. Transcontinental Capri 2 1801 North Gerhart Drive Clinton, MO 64735 • Built in 2003 • 126,000 sq.ft. 36 • 4 – D I V E R
Slide 37: Developing a Variety of Packaging Solutions
Developing a Variety of Packaging Solutions > Pouches > Wrapping > Stand-up pouches > Lidding > Overwrap bags > Re-closeable, sealable bags & pouches 37 • 4 – D I V E RS I F Y I N G I N TO PAC K AG I N G
Slide 38: Achieving Expected Results
Achieving Expected Results > Results in line with expectations (Rev.: US$72M; EBITDA: US$17M) $25 $23 $19 $6 $6 $4 Q3-2014 Q4-2014 Q1-2015 Revenues (in CAD) Adjusted EBITDA (in CAD) 38 • 4 – D I V E RS I F Y I N G I N TO PAC K AG I N G
Slide 39: Growing Packaging Division Going Forward
Growing Packaging Division Going Forward 1 Increase the efficiency of acquired plants 2 Develop new sales in Canada and in the United States 3 Grow by acquisitions in order to build a North American network of plants 39 • 4 – D I V E RS I F Y I N G I N TO PAC K AG I N G
Slide 40: Largest Publisher and Distributor of Local Media in Quebec
SECTION Largest Publisher and Distributor of 5 Local Media in Quebec 40
Slide 41: Presenting Our Media Business Segments
Presenting Our Media Business Segments > Strengthen the media offering and build digital Business Interactive Information Local Solutions Marketing Solutions Solutions, Books and Education • Multiplatform dailies and • Content creation • Multiplatform business media weeklies (Quebec, Ontario, o cust
Slide 42: Local Market: Leader in Quebec and the Atlantic Provinces
Local Market: Leader in Quebec and the Atlantic Provinces > TC Media is the go-to source for local and regional information and the leading door-to-door distributor of advertising material Sales Quality Local Expertise Network Content & Community Connection Door-to-Door Largest Product & Promo Conte
Slide 43: Interactive Marketing Solutions: Important Promotional Content Creator
Interactive Marketing Solutions: Important Promotional Content Creator > COPE: Create once, publish everywhere Content Content Content Creation Organization Distribution 43 • 5 – L A RG ES T P U B L I S H E R A N D D I S T R I B U TO R O F LO C A L M E D I A I N Q U E B EC
Slide 44: Business and Education: Leading Provider of French Content
Business and Education: Leading Provider of French Content > Developing new sources of revenues Brand High Quality Niche or Equity Content Exclusive Content 44 • 5 – L A RG ES T P U B L I S H E R A N D D I S T R I B U TO R O F LO C A L M E D I A I N Q U E B EC
Slide 45: Returning to Profitability Growth
Returning to Profitability Growth MEDIA SECTOR ADJUSTED EBIT $89M $62M $54M $51M $43M $38M 2010 2011 2012 2013 2014 2015 LTM 45 • 5 – L A RG ES T P U B L I S H E R A N D D I S T R I B U TO R O F LO C A L M E D I A I N Q U E B EC
Slide 46: Creating Value in the Media Sector Going Forward
Creating Value in the Media Sector Going Forward 1 Integrate Sun Media weeklies acquisition 2 Grow revenues in digital and interactive marketing products 3 Build new sources of revenues for educational books and trade publications 4 Pursue the efficient integration of multi-platform offerings with t
Slide 47: Financial Situation
SECTION Financial 6 Situation 47
Slide 48: Reducing Adjusted Net Indebtedness And Leverage Ratio
Reducing Adjusted Net Indebtedness And Leverage Ratio > Target leverage between 1.0x and 2.0x $903M 2.6x Completed $699M $250M private financing in May 2014 1.9x $539M 1.5x $471M $459M $442M 1.3x 1.2x 1.2x $321M 1.0x 2009* 2010** 2011** 2012** 2013*** 2014 Q1-2015 * As originally reported and includ
Slide 49: Pushing Out Debt Maturities
Pushing Out Debt Maturities > Majority of main maturities are due after 2018 MAIN DEBTS MATURITY SCHEDULE AT JANUARY 31, 2015 (IN C$M) $118 $50 $282 $250 $7 $12 $50 2015 2016 2017 2018 2019 2020 Private Placement (C$) Private Placement (US$) HVB (amortized 5 years) Solidarity Fund Debenture (10 year
Slide 50: Minimizing Capital Investment Going Forward
Minimizing Capital Investment Going Forward > Significant reduction in capex levels CAPITAL EXPENDITURES (INCL.INTANGIBLE ASSETS) ≈ $200M on avg. / year $284M + $130M of $260M cash created $166M ≈ $70M on avg. / year $159M $149M $144M $74M $75M $65M $59M $62M 2005 2006 2007 2008 2009 2010 2011 2012
Slide 51: Sustaining Dividend Growth
Sustaining Dividend Growth > 5-year CAGR 16% and 3.9% yield (as at April 6, 2015) DIVIDENDS PAID PER PARTICIPATING SHARES ON AN ANNUAL BASIS + Paid +6% special dividend of $1.00 $0.68 $0.63 $0.57 $0.58 $0.49 $0.35 $0.31 $0.32 $0.28 $0.25 $0.21 $0.17 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Slide 52: Buying Back Shares
Buying Back Shares > Opportunistic use of normal course issuer bid (expires April 14, 2015) PARTICIPATING SHARE REDEMPTIONS $67M $53M $49M No share $17M No share buybacks $12M buybacks $75M 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1-2015 52 • 6 – F I N A N C I A L S I T UAT I O N
Slide 53: Generating Strong Free Cash Flow
Generating Strong Free Cash Flow > Flexibility to grow FREE CASH FLOW $252M $222M $207M $210M $193M $140M 2010 2011 2012 2013 2014 2015 (LTM) * Excluding special dividend Note: Free cash flow is adjusted operating earnings before amortization less the sum of capital expenditures, dividends on partic
Slide 54: Deploying Capital Efficiently
Deploying Capital Efficiently > Multipronged approach to capital allocation PRIMARY USES OF CASH Total allocated since FY’ 2007: Focus on acquisitions in Capital expenditures $1,131M 2014 $49M (incl. intangibles) Dividends $408M $53M $67M $14M Acquisitions $575M $26M Share repurchases $131M $25M $13
Slide 55: Top Ten Reasons to Invest
SECTION Top Ten Reasons 7 to Invest 55
Slide 56: Key Takeaways
KEY TAKEAWAYS Excellent financial 1 Attractive free cash flow yield 6 position Consistent dividend 2 Largest printer in Canada 7 growth 3 Long-term contracts 8 Diversifying into new promising growth area 4 Most efficient printer in North America 9 Consolidator of local media market in Quebec 5 Stabl
Slide 57: Attractive Free Cash Flow Yield
Attractive Free Cash Flow Yield > Print sector is backbone of free cash flow story FREE CASH FLOW YIELD 23.3% 21.6% 21.0% 17.8% 15.9% 11.3% 2010 2011 2012 2013 2014 2015 (LTM) Note : Free cash flow is adjusted operating earnings before amortization less the sum of capital expenditures, dividends on
Slide 58: Largest Printer in Canada
Largest Printer in Canada > TC Transcontinental has consolidated the Canadian printing industry 24 State-of-the-art printing plants (As at April 7, 2015) Quebec British Columbia Beauceville Delta Boucherville Gatineau Newfoundland Montreal (4) Corner Brook Quebec (2) St. John’s St-Hyacinthe Prince E
Slide 59: Long-Term Contracts
Long-Term Contracts > About 65% of our total revenues are under contract (3 years and over)(1) 2014 Revenues : $2.1B ≥ 10 years, 14% Newspaper Printing Packaging ≥ 3 to <10 years, 51% Retail Magazines and Books Marketing Products (20%) Distribution 0 to <3 years, 35% Marketing Products (80%) Newspap
Slide 60: Most Efficient Printer in North America
Most Efficient Printer in North America > Highest EBITDA margins in the industry EBITDA MARGINS (LTM available) 21.9% 13.9% 10.7% 11.2% 8.2% LTM: Last 12 months 60 • 7 – TO P T E N R EA S O N S TO I N V ES T
Slide 61: Stable Retail Flyer Demand
Stable Retail Flyer Demand > Close to 50% of consolidated revenues are linked to retail flyers where demand remains stable • Flyers drive traffic to the store • A sizable, high- frequency and recurring source of revenue 61 • 7 – TO P T E N R EA S O N S TO I N V ES T
Slide 62: Excellent Financial Position
Excellent Financial Position > Significant reduction in debt levels over past five years $903M 2.6x Completed $699M $250M private financing in May 2014 1.9x $539M 1.5x $471M $459M $442M 1.3x 1.2x 1.2x $321M 1.0x 2009* 2010** 2011** 2012** 2013*** 2014 Q1-2015 * As originally reported and including s
Slide 63: Consistent Dividend Growth
Consistent Dividend Growth > 5-year CAGR of 16% and yield of 3.9% (as at April 6, 2015) DIVIDENDS PAID PER PARTICIPATING SHARES ON AN ANNUAL BASIS + Paid +6% special dividend of $1.00 $0.68 $0.63 $0.57 $0.58 $0.49 $0.35 $0.31 $0.32 $0.28 $0.25 $0.21 $0.17 2004 2005 2006 2007 2008 2009 2010 2011 2012
Slide 64: Diversifying Into New Promising Growth Area
Diversifying Into New Promising Growth Area > Packaging is a growth area where we will leverage our key success factors in Print 1 Leverage manufacturing competency Similar manufacturing 2 process 3 Contract-based business 4 Strong customer relationships 64 • 7 – TO P T E N R EA S O N S TO I N V ES
Slide 65: Consolidator of Local Media Market in Quebec
Consolidator of Local Media Market in Quebec > Expected annualized EBITDA contribution of $20 million from Sun Media weeklies acquisition > Solidifies our position in the market > 400 sales representatives > Leverages distribution network > Portfolio of over 100 newspapers in Quebec > Continue to pr
Slide 66: Family-Controlled Business
Family-Controlled Business > Management has vested interest in Corporation’s future growth > Family owns 17% of shares, representing 73% of the voting rights > Long-term vision for growth > Actively pursuing acquisitions in new promising Rémi Marcoux, growth area Founder and Director, Transcontinent
Slide 67: Thank You
Q @ THANK YOU
Transcontinental — Investor Presentation (April 2015) on 6ix