Transcontinental Inc. Class A · TSX:TCL.A
Transcontinental Inc. Class A — Investor Presentation (September 2014)
74 slides from Transcontinental Inc. Class A's investor presentation, Sep 17, 2014
Slide 1: Free Cash Flow Keeps on Flowing
I N V E S T O R P R E S E N TAT I O N September 17, 2014 Free Cash Flow Keeps on Flowing
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 Top Ten Reasons to Invest 18 SECTION 3 Print 30 SECTION 4 Media 40 SECTION 5 Update on Recent Transactions 51 SECTION 6 Review of Q3’2014 Results 57 SECTION 7 Financial Situation 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. Over 50% of total revenues are related to retailers’ value chain 4. Over 80% of total revenues are linked to advertising and marketing budgets 5. Recen
Slide 6: Moving From Entrepreneurial To Canadian Leader
Moving From Entrepreneurial To Canadian Leader > 30 employees 9,000 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 7: Operating in Two Sectors
Operating in Two Sectors 2013 Revenues (1) $2.1B Media : (2) 32 % + ≈ US$72M revenues from Capri Packaging in 2014 $705M ≈ $72M revenues from Sun Media in + Printing : (2) 2014 68 % $1,477M (1) 2013 figures have been restated to take into account the effects of amended IAS 19 - Employee Benefits, IF
Slide 8: Focusing on Selected Markets
Focusing on Selected Markets (1), (2) Interactive Marketing Sol. Business Sol. Consumer and Education Solutions $116M $96M $129M Local Solutions Retail and $364M Newspapers $882M $269M Marketing Products $326M Magazines and Books (1) 2013 figures above have been restated to take into account the eff
Slide 9: Diversifying Away From Advertising-based Revenues
Diversifying Away From Advertising‐based Revenues > Recently acquired a supplier of flexible packaging solutions Non-advertising based revenues: 20% • Book printing • Book publishing • Magazine Advertising- subscriptions based 80% • Other revenues revenues 9 • 1 – O U R P RO F I L E
Slide 10: Relying on Retail Flyers for Repetitive Cash Flow
Relying on Retail Flyers for Repetitive Cash Flow (1) > Retail flyers is a contractual and repetitive business Interactive Marketing & Premedia $74M Distribution $130M Other Retail revenues $200M Balance of TC > 50% of Transcontinental consolidated revenues Retail flyer printing & revenues are (in-s
Slide 11: Leveraging Strong Customer Relationships
Leveraging Strong Customer Relationships Food Drugstores Home Improvement Big Box Consumer Products Newspaper Publishers Book Publishers Food Manufacturers 11 • 1 – O U R P RO F I L E
Slide 12: Delivering A Track Record Of Performance
Delivering A Track Record Of Performance REVENUES ($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 13: 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 14: Focusing On Corporate Social Responsibility
Focusing On Corporate Social Responsibility • Attract, develop and retain talent • Maintain and enhance employee “For our 2013-2015 plan, health, safety and wellness we identified three pillars to help guide our strategic Employees roadmap: the environment, employees and • Invest in community commun
Slide 15: Executing Our Strategic Plan
Executing Our Strategic Plan MISSION KEY STRATEGIC FOCUS AREAS KEY RISKS PRINT • Optimize printing platform • Develop in-store marketing (IMS) opportunity • Advertising • Develop newspaper outsourcing market agreements MEDIA • Integrate Sun Media acquisition • Use of retail flyer HELP • Invest in ne
Slide 16: 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 Aug'09 Aug'10 Aug'11 Aug'12 Aug'13 Aug'14 Intraday high $17.19 $17.25 * Stock price as of August 29th, 2014: $15.11 Intraday low $11.50 $7.97 Avg. vo
Slide 17: 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 18: Top Ten Reasons to Invest
SECTION Top Ten Reasons to Invest 18
Slide 19: Key Takeaways
KEY TAKEAWAYS 1. Attractive free cash flow yield 6. Excellent financial position 2. Largest printer in Canada 7. Consistent dividend 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
Slide 20: Attractive Free Cash Flow Yield
Attractive Free Cash Flow Yield > Print sector is backbone of free cash flow story FREE CASH FLOW YIELD 23.2% Sharp rise in share 21.6% price in 2013 16.7% 17.1% 11.3% 2010 2011 2012 2013 2014 (LTM) Note : Free cash flow is adjusted operating earnings before amortization less the sum of capital expe
Slide 21: Largest Printer in Canada
Largest Printer in Canada > TC Transcontinental has consolidated the Canadian printing industry 26 printing plants (As at September 17, 2014) Quebec Beauceville British Columbia Boucherville Delta Gatineau Montreal (4) Newfoundland Quebec (2) Corner Brook St-Hyacinthe St. John’s Ontario Prince Edwar
Slide 22: Long-Term Contracts
Long‐Term Contracts > Over 60% of our total revenues are under contract CONTRACT LENGTH BY SEGMENT 8% Contract length +10 years 5 to 10 years > 3 to < 5 years 0 to 3 years No contract Note: 2013 estimated distribution. 10% 92% 28% 60% 90% 45% 72% 55% 40% Retail Newspapers Magazines Distrib
Slide 23: Most Efficient Printer in North America
Most Efficient Printer in North America > Highest EBITDA margins in the industry EBITDA MARGINS (LTM available) 21.1% 13.4% 11.8% 10.7% 9.0% LTM: Last 12 months 23 • 2 – TO P T E N R EA S O N S TO I N V ES T
Slide 24: Strong Retail Flyer Demand
Strong Retail Flyer Demand > Over 50% of consolidated revenues are linked to retail flyers where demand remains strong • Flyers drive traffic to the store • A sizable, high- frequency and recurring source of revenue • Potential new business from U.S. entrants 24 • 2 – TO P T E N R EA S O N S TO I N
Slide 25: Excellent Financial Position
Excellent Financial Position > Significant reduction in debt levels over past five years ADJUSTED NET INDEBTEDNESS AND LEVERAGE RATIO $903M 2.6x Completed $250M private $699M financing in May 2014 1.9x $539M 1.5x $471M $453M 1.3x 1.3x $321M 1.0x 2009* 2010** 2011** 2012** 2013*** 2014 (YTD at Q3'201
Slide 26: Consistent Dividend Growth
Consistent Dividend Growth > 5-year CAGR of 15% and yield of 4.2% (as at Aug.29, 2014) + Paid special DIVIDENDS PAID PER PARTICIPATING SHARES dividend of +10% ON AN ANNUAL BASIS $1.00 $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 27: 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 Leverage manufacturing 1 competency 2 Similar manufacturing process 3 Contract-based business Proximity to end markets 4 27 • 2 – TO P T E N R EA S O N S TO I N V ES T
Slide 28: 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 close to 120 newspapers > Continue to provide
Slide 29: 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 30: Print
SECTION Print 30
Slide 31: Key Takeaways
KEY TAKEAWAYS 1. EBITDA margins over 20% 2. State-of-the-art national printing platform 3. Consolidator of the Canadian print market 4. Backbone of free cash flow story 31 • 3 ‐ PRINT
Slide 32: Executing Our Strategic Plan
Executing Our Strategic Plan MISSION KEY STRATEGIC FOCUS AREAS KEY RISKS PRINT • Optimize printing platform • Develop in-store marketing (IMS) opportunity • Advertising • Develop newspaper outsourcing market agreements MEDIA • Integrate Sun Media acquisition • Use of retail flyer HELP • Invest in ne
Slide 33: Offering A State-of-the-Art National Printing Network
Offering A State‐of‐the‐Art National Printing Network 26 printing plants (As at September 17, 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 B
Slide 34: Minimizing Capital Investment Going Forward
Minimizing Capital Investment Going Forward > Over $700M invested in capex between 2007 and 2010 CAPITAL EXPENDITURES (INCL.INTANGIBLE ASSETS) $284M $260M $166M $159M $149M Reduction in $144M capex $74M $75M $65M $59M 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 34 • 3 ‐ PRINT
Slide 35: 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 US$30M $30M $248M Black & white book printing Mexican operations U.S. direct mail U.S. retail operations U.S. personalized print $60M $64M $60M
Slide 36: Consolidating the Canadian Print Market
Consolidating the Canadian Print Market > Generated $45 million in synergies with the Quad/Graphics acquisition CUMULATIVE SYNERGIES FOLLOWING QUAD/GRAPHICS CANADA, INC. ACQUISITION $45M+ $40M $35M $31M Quad/Graphics Canada, Inc. acquisition in $19M March $10M $3M $0 Q2'2012 Q3'2012 Q4'2012 Q1'2013
Slide 37: Increasing EBITDA Margins Above 20%
Increasing EBITDA Margins Above 20% > Industry-leading EBITDA margins Integration of Quad/Graphics 21.1% Canada, Inc. 20.5% 20.3% 19.6% 19.2% Financial crisis and recession 15.5% 2009 2010 2011 2012 2013* 2014 (LTM) * 2013 figures have been restated to take into account the effects of amended IAS 19
Slide 38: Optimizing the Printing Platform
Optimizing the Printing Platform > Increasing profitability with less plants in a stable revenue environment ADJUSTED EBIT $230M 48 plants $222M 38 plants $198M $200M $180M 29 29 27 plants plants 26 plants plants $147M 2009 2010 2011 2012 2013* 2014 (LTM) * 2013 figures have been restated to take in
Slide 39: Maintaining Profitability in Print Going Forward
Maintaining Profitability in Print Going Forward 1 Continue to optimize the Printing platform Leverage contribution from Quebecor printing agreements for 2 magazines, books and marketing materials 3 Gain additional newspaper outsourcing agreements 4 Develop in-store marketing (ISM) opportunity 5 Win
Slide 40: Media
SECTION Media 40
Slide 41: Key Takeaways
KEY TAKEAWAYS 1. Increase in Media profitability 2. Integration of Sun Media acquisition 3. Diversification into non-advertising based assets 4. Significant cost reductions 41 • 4 – MEDIA
Slide 42: Executing Our Strategic Plan
Executing Our Strategic Plan MISSION KEY STRATEGIC FOCUS AREAS KEY RISKS PRINT • Optimize printing platform • Develop in-store marketing (IMS) opportunity • Advertising • Develop newspaper outsourcing market agreements MEDIA • Integrate Sun Media acquisition • Use of retail flyer HELP • Invest in ne
Slide 43: Presenting Our Media Business Segments
Presenting Our Media Business Segments > TC Media activates marketing programs for its customers – “marketing activation” – in the following segments: C O N S UM E R LOCAL I N T E R A C T I VE B U SIN ESS S O L U T ION S S O L U T ION S M A R K E T I NG S O L U T ION S & S O L U T ION S E D U C A T
Slide 44: Offering Multiplatform Marketing Solutions
Offering Multiplatform Marketing Solutions > We are a leading media and interactive marketing solutions provider in Canada Digital Media E-Newsletter Partnerships Mobile Custom Publishing TC Media Business Publications reaches more than Books Daily Newspapers Home Distribution Events 22 million cons
Slide 45: Exceptional Reach: Over 22 Million Consumers in Canada
Reaching Over 22 Million Consumers in Canada BUSINESS GEO-TARGETED Exceptional PUBLICATIONS DISTRIBUTION + 25 MAGAZINES 14.3 M 11.6 M reach: 523 K readers 1 households readers 1 DATABASES + 3,500 WEBSITES 9 DAILY NEWSPAPERS 6.1 M 15.7 M 350 K mailing addresses unique visitors readers 2 592 K 2.2 B M
Slide 46: Reaching Canadian Consumers in French and English
Reaching Canadian Consumers in French and English Magazines Newspapers Coverage in Quebec, Women and business Atlantic provinces and Saskatchewan 46 • 4 – MEDIA
Slide 47: Investing in New Revenue Streams
Investing in New Revenue Streams Websites iPad magazine app (advertising, subscription) Real-time bidding online advertising network (Redux Media) Email marketing, Eflyer and Mobile 47 • 4 – MEDIA
Slide 48: Diversifying into Non-Advertising Based Activities
Diversifying into Non‐Advertising Based Activities > Over $150 million invested in non-advertising based assets • Chenelière Éducation • Éditions Caractère • Groupe Modulo 48 • 4 – MEDIA
Slide 49: Stabilizing Profitability
Stabilizing Profitability > Cost-cutting and new distribution agreements are yielding tangible results MEDIA SECTOR ADJUSTED EBIT $30.5M 2012 * 2013 ** 2014 $21.6M +55% $12.7M $12.1M $10.2M +9% $7.8M $7.8M $6.5M $6.5M $7.1M $0.9M $1.7M $1.7M * As originally reported. ** 2013 figures have been
Slide 50: Growing Profitability in the Media Sector Going Forward
Growing Profitability in the Media Sector Going Forward 1 Integrate Sun Media acquisition 2 Leverage new distribution agreements Cut costs significantly 3 Diversify into non-advertising based businesses 4 5 Invest in new revenue streams 50 • 4 – MEDIA
Slide 51: Update on Recent Transactions
SECTION Update on Recent Transactions 51
Slide 52: Key Takeaways
KEY TAKEAWAYS Capri Packaging Sun Media 1. Entry into flexible packaging 1. Sun Media acquisition solidifies provides future growth path assets 2. Ability to leverage core 2. Continue to provide relevant manufacturing competency local content to communities 3. 10-year contract with Schreiber 3. Deve
Slide 53: Sun Media Transaction Details
Sun Media Transaction Details December 5, 2013: > Announced acquisition of 74 weekly newspapers owned by Sun Media in Quebec and; > Agreement with Quebecor Media to print some of its magazines and direct marketing materials. > Purchase price: $75 million > Annual EBITDA contribution: $20 million 53
Slide 54: Sun Media Transaction Update
Sun Media Transaction Update > Priority is to integrate the acquisition and generate $20 million in synergies June 2, 2014: September 3, 2014: > Transaction closed. > Announced results of sale process and details of portfolio review. > Must put up for sale (under the terms of the agreement with the
Slide 55: 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 56: Capri Packaging Transaction Update
Capri Packaging Transaction Update > Priority is to integrate the acquisition and generate US$17 million in annualized EBITDA > Integration process is progressing well. > Solid team of seasoned managers in place working to grow the business by optimizing the operations and developing a sales team. >
Slide 57: Review of Q3'2014 Results
SECTION Review of Q3’2014 Results 57
Slide 58: Key Takeaways
KEY TAKEAWAYS 1. Increased profitability 2. Marked improvement in Media sector profitability 3. Contributions from acquisitions 4. Soft advertising market 58 • 6 – R E V I E W O F Q 3 ’ 2 0 14 R ES U LT S
Slide 59: Q3'2014 Consolidated Highlights
Q3’2014 Consolidated Highlights REVENUES > Revenues up 1.9% +2% $500M + Contribution from Capri and $491M Sun Media acquisitions + New printing agreements + New distribution agreements - Soft advertising market Q3'2013* Q3'2014 > Adjusted EBIT up 11.0% ADJUSTED EBIT + Contribution from acquisitions
Slide 60: Q3'2014: Printing Sector
Q3’2014: Printing Sector REVENUES: PRINTING > Revenues up 2.4% +2% $338M $346M + Contribution from Capri Packaging + New printing agreements - Lower volume in magazines, newspapers and marketing products Q3'2013* Q3'2014 ADJUSTED EBIT: PRINTING - Sale of Rastar > Adjusted EBIT up 1.2% + Contribution
Slide 61: Q3'2014: Media Sector
Q3’2014: Media Sector REVENUES: MEDIA +1% > Revenues up 1.3% $173M $175M + Contribution from acquisition of Axis Title Sun Media weeklies + New distribution agreements - Soft advertising market Q3'2013* Q3'2014 ADJUSTED EBIT: MEDIA > Adjusted EBIT up 55.1% + Cost structure optimization +55% $12.1M +
Slide 62: Q3'2014 Operational Highlights
Q3’2014 Operational Highlights > Adjusted net earnings +12.6% > Closing of Capri Packaging acquisition > Agreement to print The Gazette newspaper > $250 million private financing agreement > Closing of acquisition of Sun Media weekly newspapers in Quebec > Net indebtedness ratio of 1.3x > ‘Best 50 C
Slide 63: Financial Situation
SECTION Financial Situation 63
Slide 64: Key Takeaways
KEY TAKEAWAYS 1. Strong balance sheet 2. Significant free cash flow 3. Multipronged approach to capital allocation 64 • 7 ‐ F I N A N C I A L S I T UAT I O N
Slide 65: 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 Completed $699M $250M private financing in May 2014 1.9x $539M 1.5x $471M $453M 1.3x 1.3x $321M 1.0x 2009* 2010** 2011** 2012** 2013*** 2014 (YTD at Q3'2014) * As originally reporte
Slide 66: Spreading Out Debt Maturities
Spreading Out Debt Maturities > Fixed: 84%; Variable: 16% MAIN DEBTS MATURITY SCHEDULE AT JULY 31, 2014 (IN C$M) $400M Private Placement (C$) Private Placement (US$) HVB (amortized 5 years) Solidarity Fund Debenture (10 years) Solidarity Fund Debenture (6 years) Revolving Credit Facility
Slide 67: Minimizing Capital Investment Going Forward
Minimizing Capital Investment Going Forward > Significant reduction in capex levels CAPITAL EXPENDITURES (INCL.INTANGIBLE ASSETS) $284M $260M $166M $159M $149M $144M $74M $75M $65M $59M 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 67 • 7 ‐ F I N A N C I A L S I T UAT I O N
Slide 68: Growing by Acquisition
Growing by Acquisition > 2014 has been a year of acquisitions Capri Packaging & Sun CAPITAL ALLOCATED TO ACQUISITIONS Media acquisitions > Capri Packaging > Sun Media weeklies $221M > Groupe Modulo > Redux Media > Les Éditions Caractère > Quad/Graphics Canada, Inc. > Vortex Mobile > LIPSO $60M $14M
Slide 69: Sustaining Dividend Growth
Sustaining Dividend Growth > 5-year CAGR 15% and 4.2% yield (as at Aug.29, 2014) DIVIDENDS PAID PER PARTICIPATING SHARES ON AN ANNUAL BASIS + Paid special + 10% dividend of $0.63 $1.00 $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 70: Executing on Share Buyback Program
Executing on Share Buyback Program > Opportunistic use of normal course issuer bid PARTICIPATING SHARE REDEMPTIONS $67M $53M $49M No share No share buybacks buybacks $17M $12M 2006 2007 2008 2009 2010 2011 2012 2013 YTD'2014 70 • 7 – F I N A N C I A L S I T UAT I O N
Slide 71: Redeeming Preferred Shares
Redeeming Preferred Shares > Redemption of 4 million outstanding Cumulative 5-Year Rate Reset First Preferred Shares, Series D on October 15, 2014 > Price per share: $25.00 > Aggregate total: $100 million > Financing method: Through revolving credit facility > Will reduce financing costs 71 • 7 – F
Slide 72: Generating Strong Free Cash Flow
Generating Strong Free Cash Flow > Flexibility to grow FREE CASH FLOW $222M $217M* $193M $201M Starting in Q1’2015, expect much higher cash outflow for $140M taxes as tax loss carryforwards related to the Quad acquisition in 2012 will have been fully used. * Excluding special dividend -$26M 2009 201
Slide 73: Deploying Capital Efficiently
Deploying Capital Efficiently > Multipronged approach to capital allocation PRIMARY USES OF CASH Total allocated since FY’ 2007: Focus on Capital expenditures $1,102M acquisitions in $49M (incl. intangibles) 2014 Dividends $380M $53M $67M $14M Acquisitions $570M $26M Share repurchases $131M $25M $13
Slide 74: Thank You
tX @ = TRANSCONTINENTAL AMARKETING ACTIVATION COMPANY www.tc.tc
Transcontinental — Investor Presentation (September 2014) on 6ix