Transcontinental Inc. Class A · TSX:TCL.A
Transcontinental Inc. Class A — TC Transcontinental — Investor Presentation (September 2012)
60 slides from Transcontinental Inc. Class A's investor presentation, Sep 20, 2012
Slide 1: Confident In The Future Despite Some Headwinds
Confident In The Future Despite Some Headwinds Investor Presentation September 20, 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 TC Transcontinental Overview 4 Addressing Hot Topics 15 Print Products Are Here to Stay 24 Generating Synergies In the Printing Sector 31 Growing Our Media Presence In Canada 40 Maintaining A Strong Balance Sheet 46 Maximizing Use Of Strong Free Cash Flow 51 Appendix 57 3
Slide 4: TC Transcontinental Overview
TC TRANSCONTINENTAL OVERVIEW
Slide 5: 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 6: Operating In Niche Markets
Operating In Niche Markets 2011 REVENUES: $2B* $1,376M $704M PRINTING(1) MEDIA(1) 66% 34% $361 Retail and Newspaper Group $791 Local Community Solutions Group $155 Magazine and Book Group $324 Business and Consumer Solutions Group $ 71 Marketing Products Group $261 Content Solutions Group $ 67 Digit
Slide 7: 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 (2) Borden - Carlton, PEI Edmonton, AB Sydney, NS Montreal, QC (2 facilities) Saskatoon, SK Montreal, QC Montreal, QC Dartmouth, NS Calgary, AB Montreal, QC (2) Halifax, NS Winnipeg, MB
Slide 8: 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 9: Leveraging Strong Customer Relationships
Leveraging Strong Customer Relationships Food Drugstores Newspapers Home Improvement Consumer Products Department Stores 9
Slide 10: Delivering A Track Record Of Performance
Delivering A Track Record Of Performance Dividends Paid per Revenues ($M) Cash Flow from Operations ($M) Participating Share (¢) Divested U.S. Direct Mail ($248M) $300 $311 $311 $289 49¢ $2,326 $2,429 Divested $2,170 $2,092 Mexican $247 $1,989 operations ($64M) & 35¢ 31¢ 32¢ B&W Book 28¢ operations
Slide 11: Tracking Stock Price Performance
Tracking Stock Price Performance Avg. # of shares: 80.9M Market cap*: $677.9M Public Float: 71.7M Dividend yield*: 6.9% Corporate credit rating: DBRS: BBB, Negative trend; S&P: BBB, Stable $14 Stock Price for 1 year $24 Stock Price for 5 years $13 $19 $12 $11 $14 $10 $9 $9 $8 $4 Intraday high $14.14
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 organizational boundaries to offer relevant and innovative solutions to our customers. integrated solutions to our
Slide 13: Updating The Executive Management Team
Updating The Executive Management Team François Olivier, President and Chief Executive Officer and Interim President TC Media Nelson Gentiletti, Chief Financial and Development Officer Alain Gignac, Chief Marketing Activation Officer Christine Desaulniers, Chief Legal Officer and Corporate Secretary
Slide 14: 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 15: Addressing Hot Topics
ADDRESSING HOT TOPICS
Slide 16: Addressing Hot Topics
Addressing Hot Topics Losing The Zellers Contract Explaining Q3’2012 Profit Shortfall By Educational Publishing Activities Generating Limited Organic Revenue Growth In The Short Term Ramping Up Financial Results Over Next 12 Months Providing Incentives For Contract Renewals: Short Term Pain For Long
Slide 17: Losing The Zellers Contract
Losing The Zellers Contract Zellers has been Transcontinental’s customer since 1976 In early 2011, Zellers announced that Target was going to take over some of its store leases In 2011 Transcontinentel confirmed that Zellers was a customer and would eventually lose some business but the timing and f
Slide 18: Explaining Q3'2012 Profit Shortfall By Educational Publishing Activities
Explaining Q3’2012 Profit Shortfall By Educational Publishing Activities Adjusted EBIT $57M $5M is due → End of school reform in Quebec $7M to Educational Shortfall Publishing → Students strikes in Quebec $50M Q3'2011 Q3'2012 18
Slide 19: Generating Limited Organic Revenue Growth In The Short Term
Generating Limited Organic Revenue Growth In The Short Term Printing Sector Media Sector Mature industry Sector strategy is to grow the business with new revenue streams Limited organic revenue growth going forward Dependent on volatile advertising market Sector strategy is to increase efficiencies
Slide 20: Ramping Up Financial Results Over Next 12 Months
Ramping Up Financial Results Over Next 12 Months Q4’ 2012 2013 Quad synergies, estimated EBITDA at $8M Revenue impact from Quad in Q1’13 Soft national advertising market Larger impact of Quad synergies hit P&L Media Q4’12 profitability in line with Q4’11 Cost savings in Media sector Tax rate in the
Slide 21: Providing Incentives For Contract Renewals
Providing Incentives For Contract Renewals: Short Term Pain For Long Term Gain Renewed and expanded many multi-year contracts valued at over $1.5B in revenues. As at today, over 60% of our consolidated revenues are secured under contract. Long Term Short Term Secures cash flow for many years to come
Slide 22: Securing Long Term Contracts
Securing Long Term Contracts Over 60% of our total revenues are under contract* 10% 10% 90% 25% 70% 45% 90% 75% 55% 30% Retail Magazines Newspapers Distribution & Premedia Marketing Products +10 yrs 5 to 10 yrs >3 to < 5 yrs 0 to 3 yrs No contract Note: Estimated distribution. Estimated revenues pro
Slide 23: Sustaining the EBITDA Level Going Forward
Sustaining the EBITDA Level Going Forward Estimated Revenues Distribution, Pro-Forma Quad/Graphics Canada, Inc. Acquisition Guaranteed long term contracts Not volume dependent No contracts Newspaper La Presse, G&M, SFC and TC community Printing newspapers Dependent on advertising market Media 24% 15
Slide 24: Print Products Are Here to Stay
PRINT PRODUCTS ARE HERE TO STAY
Slide 25: Print Products Are Here To Stay
Print Products Are Here To Stay Keeping Ad Spending In Print Products Growing Canadian Newspaper Readership Stabilizing Canadian Magazine Readership Maintaining Readership Trends In Community Newspapers Ongoing Demand For Retail Flyers 25
Slide 26: Keeping Ad Spending In Print Products
Keeping Ad Spending In Print Products $15 billion advertising market in Canada in E2012 Community Newspapers, Trade, 1% 8% Directories, 5% 40% Catalogue / Direct Mail, 9% TV, 24% General Magazines, 4% Of advertising spending is in Radio, 10% print products Daily Newspapers, 13% Out-of Home Internet,
Slide 27: Growing Canadian Newspaper Readership
Growing Canadian Newspaper Readership Newspaper 2011 Readership – 2011 Readership – 2011 Readership – 2011 Readership – Weekday yoy %∆∆ Week-end yoy %∆∆ Weekday Week-end + 5% + 3% 991,800 1,101,100 (National market) + 10% - 3% 436,500 552,400 (Montreal market) + 3% n/a 349,700 n/a (Montreal market)
Slide 28: Stabilizing Canadian Magazine Readership
Stabilizing Canadian Magazine Readership 6.3 20.4 (in million) (in million) 20.2 6.2 20 6.1 19.8 +3% 19.6 6 19.4 5.9 +4% 19.2 5.8 19 18.8 5.7 18.6 5.6 18.4 2008 2009S 2009F 2010S 2010F 2011S 2011F 2012S French Publications English Publications Source: PMB 2006 – PMB 2012-Spring, Canada total 12+ Not
Slide 29: Maintaining Readership Trends in Community Newspapers
Maintaining Readership Trends in Community Newspapers 64% 65% 64% 2004 2007 2010 Weekly readership rate in the 17 administrative regions of Quebec Source: StatHebdo 2010 29
Slide 30: Ongoing Demand For Retail Flyers
Ongoing Demand For Retail Flyers "Canadian consumers continue to prefer using print flyers to plan their purchases, regardless of their adoption of new technologies, 87% forcing retailers to maintain print flyers as one of their largest budget of consumers receive and read the categories”. flyers in
Slide 31: Generating Synergies In The Printing Sector
GENERATING SYNERGIES IN THE PRINTING SECTOR
Slide 32: Generating Synergies in the Printing Sector
Generating Synergies in the Printing Sector Leveraging Investments of $700M Reducing Capex Integrating Quad/Graphics Canada, Inc. Increasing EBITDA Margin Divesting Less Core Businesses Consolidating Operations Transitioning Our Commercial Business To Contractual Business 32
Slide 33: Leveraging Investments of $700M
Leveraging Investments of $700M 60 $200 $198 $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 NOTE: 2008 to 2010 data are as previously reported. 2011 has been restated to exclude the Mexican
Slide 34: Reducing CAPEX
Reducing CAPEX Investments in our hybrid platform $257M $229M $155M $130M $125M $114M $70 M $47M $50M 2005 2006 2007 2008 2009 2010 2011 2012E* 2013E* Note: * Including intangibles. 34
Slide 35: Integrating Quad/Graphics Canada, Inc.
Integrating Quad/Graphics Canada, Inc. Closed the acquisition on March 1, 2012 The integration is progressing well (half the facilities have been closed so far) On track to generate the anticipated synergies of more than $40M over the next 18 months Q4’12 synergies are expected to be about $8M The b
Slide 36: Increasing EBITDA Margin
Increasing EBITDA Margin Synergies from Quad not yet kicked-in 21.6% 20.9% 21.0% 20.3% 20.2% 20.0% 19.6%19.4% 18.3% 18.4% 18.5% 17.7% 17.6% 15.6% 15.3% 14.3% 13.9% 14.0% 11.9% Q1 Q2 Q3 Q4 2008 2009 2010 2011 2012 *NOTE: EBITDA is on an adjusted basis 36
Slide 37: Divesting Less Core Businesses
Divesting Less Core Businesses Sold remaining black and white book (B&W) printing to Marquis – Revenues: ≈ $35M (July’12) Sold Mexican operations to Quad/Graphics Inc. – Revenues: ≈ $67M (Sept’11) Sold B&W book printing operations, destined for US exports, to Quad/Graphics Inc. – Revenues: ≈ $25M (S
Slide 38: Consolidating Operations
Consolidating Operations Currently merging Transcontinental’s PLM activities into Quad/Graphics Canada, Inc. Aurora plant (Ontario) Closed facilities from Quad/Graphics Canada, Inc. (Dartmouth, RDP, Markham) – June’12 Consolidated Litho Acme plant (Quebec) – August’11 Closed Spot Graphics plant (Win
Slide 39: Transitioning Our Commercial Business To Contractual Business
Transitioning Our Commercial Business To Contractual Business Develop point-of-purchase (POP) market Develop loyalty program market Focus on contract-based business Focus on large national players Move away from low margin business 39
Slide 40: Well Positioned To Be Successful
Well Positioned To Be Successful National network of printing plants across Canada Long term contracts State-of-the-art printing platform Strong customer relationships Leader in most of the niches it serves Proven track record of execution 40
Slide 41: Growing Our Media Presence In Canada
GROWING OUR MEDIA PRESENCE IN CANADA
Slide 42: Growing Our Media Presence in Canada
Growing Our Media Presence in Canada Increasing Our Reach Growing Content In Our Communities Of Interest Expanding Our Multiplatform Offering 42
Slide 43: Increasing Our Reach
Increasing Our Reach Reach Platforms 18.7M UMV Retail flyers Magazines - print and online 23.2M consumers reached in Canada Books Newspapers - print and online 6.1M consumers reached in Quebec Marketing products Ad Bag (Publisac) 13.8M doors for Ad Bag (Publisac) Mobile Email 6.6M readers/week throu
Slide 44: Growing Content In Our Communities Of Interest
Growing Content In Our Communities Of Interest 180 community newspapers (recently acquired Édition Beauce, Courier Frontenac, L’Avantage) and launched several community newspapers 12 dailies (recently became the sole owner of Metro Montréal) ≈ 7,700 book titles (recently acquired Édition Caractère)
Slide 45: Expanding Our Multiplatform Offering
Expanding Our Multiplatform Offering Launched a television production house and started hosting the live morning show “Ça commence bien!” Developed a remote parking payment solution application – P$ Mobile Service Developed a food mobile application “On the table” Launched mobile versions of our com
Slide 46: Well Positioned To Be Successful
Well Positioned To Be Successful Capacity to reach audiences Strong brands that are known and trusted National reach in both English and French Producer of original and award winning content Solid customer relationships Turnkey multi-platform capabilities across digital and print Access to a segment
Slide 47: Maintaining A Strong Balance Sheet
MAINTAINING A STRONG BALANCE SHEET
Slide 48: Maintaining a Strong Balance Sheet
Maintaining a Strong Balance Sheet Reducing Leverage Ratio Spreading Out Debt Maturities Increasing Return On Assets 48
Slide 49: Reducing Leverage Ratio
Reducing Leverage Ratio 3.4x 3.3x 3.2x Will remain at current level or slightly decrease in the coming quarters. 2.6x 2.6x 2.4x 2.1x 2.1x 1.9x 1.9x 1.8x 1.8x 1.7x 1.6x 1.5x 1.4x 1.4x 1.4x Q4-06 Q4-07 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 (1)
Slide 50: Spreading Out Debt Maturities
Spreading Out Debt Maturities New facility put in place on Feb. 20th, 2012 $45 M was Average interest rate: 4% drawn as at July. 31st, 2012 $196 M was drawn as at Securitization July. 31st, program 2012 currently unused 400 (in millions C$) 200 200 12 50 12 75 50 12 50 15 10 2012 2013 2014 2015 2016
Slide 51: Increasing Return On Net Assets
Increasing Return On Net Assets 11.2% 11.0% 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 51
Slide 52: Maximizing Use Of Strong Free Cash Flow
MAXIMIZING USE OF STRONG FREE CASH FLOW
Slide 53: Maximizing Use Of Strong Free Cash Flow
Maximizing Use Of Strong Free Cash Flow Sustaining Dividend Growth Buying Back Shares Reducing Net Indebtedness Making Strategic Acquisitions 53
Slide 54: Sustaining Dividend Growth
Sustaining Dividend Growth 58¢ on an annualized 57¢ basis 49¢ Dividend Yield(1): 6.8% Payout ratio per cash flow(2): 14.8% 35¢ Payout ratio per free cash flow(3): 17.7% 31¢ 32¢ 28¢ 25¢ 21¢ 17¢ 14¢ 12¢ 10¢ 10¢ 8¢ 8¢ 6¢ 6¢ 6¢ 6¢ 6¢ 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Slide 55: Buying Back Shares
Buying Back Shares $67.2 M $53.1 M $48.7 M We have No share been very buybacks active in September $4.4 M 2006 2007 2008 2009 2010 2011 YTD Q3' 2012 As at Sept. 20 2012 55
Slide 56: Reducing Net Indebtedness
Reducing Net Indebtedness $908.0M $903.0M $738.0M $698.8M $539.4M $507.1M 2007 2008 2009 2010 2011 Q3'2012 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. 5
Slide 57: Making Strategic Acquisitions
Making Strategic Acquisitions $132.5M Quad/Graphics Canada, Inc. $67.3M $59.2M $35.8M $14.4M $14.0M 2007 2008 2009 2010 2011 YTD Q3'2012 57
Slide 58: Appendix
APPENDIX
Slide 59: Segmented Information
Segmented Information 2011 2012 (in millions of dollars), Unaudited Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Revenues Printing sector $ 360.6 $ 339.0 $ 321.5 $ 355.2 $ 1,376.3 $ 345.1 $ 370.7 $ 363.5 Media sector 159.2 171.3 175.5 197.7 703.7 158.5 173.6 173.6 Other activities and unallocated amounts 2.1 2.0 2.1 1
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