Transcontinental Inc. (TCLA) Earnings Call Transcript & Summary

[Interpreted] Good Day, and welcome to Transcontinental's Annual Meeting of Shareholders. The annual meeting is in virtual format only. Our meeting will take place in English and in French, with interpretation. If you go to the upper right-hand corner of your screen, you can also choose the English channel or the bilingual channel. On the right top of your screen, you can also listen to the assembly meeting in French or in an abridged version in the language that they will take place. To participate fully in this meeting, you need to be connected to the Internet at all times. Only registered shareholders and duly appointed proxy holders may ask questions and vote during this meeting. The left-hand side of your screen explains how you can exercise your rights as a shareholder. During the meeting, we invite you to refer to the 3 tabs at the top of the screen. The information tab allows you to get information and instructions on how to ask questions during the meeting and how to vote. The messages tab allows you to ask questions in the chat box, and you can ask questions in either language, and we will answer questions at the end of the meeting. Under the documents tab, you will find documents relating to the annual meeting. When voting opens, you will have access to another tab, the voting tab, which will allow you to vote on each item. We will vote by ballot. Before beginning, we'd like to draw your attention to cautionary statements and forward-looking statements on the screen. In the case of today's meeting, representatives of the company can or may in their comments or answers make forward-looking statements and documents accompanying, these remarks also contain forward-looking statements. Some statements other than statements of historical fact, are forward-looking statements based on certain assumptions. We wish to point out that there are risks that the actual events or results differ materially from these forward-looking statements. I will now turn the floor over to Ms. Isabelle Marcoux.

[Interpreted] Ladies and gentlemen, hello, I'm very pleased to welcome you here today at our 40th Annual Meeting of shareholders of Transcontinental Inc. I have Thomas Morin, President and CEO; Donald LeCavalier, Executive Vice President and CFO; Christine Desaulniers, General Counsel and Corporate Secretary with me. Mr. Remi Marcoux is also with us. I will act as Chairperson of the meeting, and Christine will be the Secretary. I'd like to ask representatives of TSX Trust to act as scrutineers for the meeting. [indiscernible] and Isabelle [indiscernible] have given me a report indicating that we have quorum. I, therefore, declare the meeting duly convened and constituted. The scrutineers' report and other documents relating to this meeting will be filed with the meeting records. The minutes of the annual meeting of March 8, 2023, are available in the documents tab. The agenda includes the receipt of Transcontinental's consolidated financial statements for the year ended October 29, 2023, and the auditor's report thereon. A copy of these documents included in the annual report will also be placed in the meeting file. The annual report, including the financial statements, has been made available to shareholders in accordance with the Canadian Business Corporations Act. These documents are also available under the documents tab. I'll now ask Ms. Christine Desaulniers to explain how voting works.

[Interpreted] Only registered shareholders and duly appointed proxy holders may vote at this meeting. If you have already voted, you do not need to do anything. Your votes have already been tabulated. However, any registered shareholder or duly appointed proxy holder who has not yet voted or who wishes to change his or her vote, may do so directly on the webcast platform. Voting is now available on all motions and can be exercised throughout the formal part of the meeting. You can therefore vote immediately or when a motion is presented or to wait until the end when the last item on the agenda has been put to the vote, and we indicate that we'll be closing the vote in a minute. You should be seeing the voting tab on your webcast platform, and you should see all motions for the meeting. I'll turn the floor back over to Isabelle Marcoux.

Thank you. Now that you have determined the number of candidates proposed as directors is 10. The vast majority of whom are independent, 50% of whom are women, we would like to mention that all nominees as directors are already the Transcontinental Directors. This year is a different year for us, this year. For the first time in over 40 years, Pierre Marcoux is not seeking reelection as a director. I have the opportunity to comment further on this later in my speech and to render homage team. It is with proud -- pride -- and very proudly, we named him Founder Emeritus. Christine?

Thank you. To facilitate the conduct of this meeting, we have asked the company's shareholders and events to make and second certain motions. Ms. Chairperson, we have received a motion from Mr. Patrick Brailey, seconded by Caroline [indiscernible], both shareholders of Transcontinental that the following people be elected until the next annual meeting or until their successors have been duly elected: Jacynthe Cote, Nelson Gentiletti, Yves Leduc, Issabelle Marcoux, Nathalie Marcoux, Pierre Marcoux, Anna Martini, Mario Plourde, Jean Raymond and Annie Thabet. Thank you very much. We duly move and second, we invite you to vote on this motion.

[Interpreted] The next item on the agenda is the appointment of auditors for the current financial year. The Board of Directors recommends the appointment of KPMG as the company's auditors for the financial year ending October 27, 2024. Christine, may I have a motion for this resolution?

[Interpreted] Madam Chair, we have a motion from Mr. Matthew Eber seconded by [indiscernible], both shareholders of Transcontinental that KPMG LLP be appointed auditors of the company for the current fiscal year and that the Board of Directors of the company be authorized to establish its compensation -- its remuneration.

[Interpreted] Thank you. The motion has been made duly made and seconded. We invite you to vote. We also decided to hold an advisory vote on executive compensation. Our executive compensation philosophy, policies and programs are based on the fundamental principles of linking pay to performance in order to align the interest of our executives with those of our shareholders. Christine, may I have a motion for the moving of this resolution.

[Interpreted] Madam Chair, we have received from [indiscernible] and seconded by Mr. [indiscernible] shareholders of Transcontinental. We, except shareholders accept the approach to executive compensation disclosed in the proxy circular provided an event of the company's Annual Meeting of Shareholders to be held on March 13, 2024. The motion has been duly moved and seconded. We now invite you to vote.

[Interpreted] We have now covered all questions put to the vote during the formal portion of this meeting. The voting will close in 1 minute on all of these questions. If you have not yet voted, please submit your vote now. We will take a short break to be able to allow you to vote. [Voting] I confirm that The ballot is now closed. Thank you. Scrutineers have confirmed the following results. All the proposed directors have been elected. And I would like to introduce them to you. First of all, Jacynthe Cote, Chairperson of the Board, Royal Bank of Canada and Corporate Director; Nelson Gentiletti, Company Director; Yves Leduc, Co-Chair and COO of X-Energy Climatic Systems and Partner of Idealist Capital; Ms. Nathalie Marcoux, Vice President, Finance.[indiscernible] ; Mr. Pierre Marcoux, President group context; Anna Martini, President and CEO of Shakobani; Mr. Mario Plourde, President and CEO of Cascades; Mr. Jean Raymond, Vice President, Managing Director and Head of CIBC Capital Markets, Quebec CIBC World Markets; Annie Thabet, company administrator and myself. Congratulations to all. KPMG has been reappointed as the company's auditor for the current financial year, and the Board of Directors is duly authorized to set their remuneration. The majority of votes were in favor of the approach to executive compensation, and I declare this motion approved. A report on the final voting results will be available on SEDAR and a press release on the final results of the election of directors will also be issued. We have now dealt with all items on the agenda. I propose that we close the formal portion of this meeting before speaking to you and sharing my annual message and then asking Mr. [indiscernible] and Mr. [indiscernible] the same. I declare this meeting adjourned. Dear shareholders, a number of events and challenges marked our financial year 2023, including the effective inflation and rapidly rising interest rates. Although I am pleased with our consolidated results that were in line with those of the previous year, growth was not as strong as we had hoped. Given declines in volumes in our 2 main sectors, our teams reacted swiftly to protect our profitability, and I encourage them to continue and congratulate them for this. In addition, our media sector successfully integrated the acquisitions of [indiscernible] ERPI and posted a solid performance. But it's not enough. It is up to us to create more value for you, our shareholders. This is why over the course of the year, we decided to focus our efforts on our 4 priorities: first of all, to generate sustained organic growth; second, to optimize the return on our assets; third, to reduce our debt; and finally, to pursue our sustainable development objectives. What's more, in line with these priorities, at the start of our 2024 financial year, we have put in place an ambitious program over 2 years to, first of all, improve our profitability; and secondly, to optimize the company's balance sheet. We are already well on our way. And I have no doubt that this program will enable us to sustain further growth in our profitability as well as achieving a level of indebtedness that will greatly improve our room for maneuver. I'm sure you'll agree that our game plan is clear. Some of these decisions combined with the end of Publisac have had a regrettable impact on employment for affected employees and their families. I sincerely thank our colleagues who have had to leave the company and gave the best of themselves. To further our priorities, our Board of Directors has made substantial changes to our management team with the appointment of Thomas Morin as President and CEO; Donald LeCavalier, as Executive Vice President and CFO; and myself as Executive Chairman of our Board. The results in recent quarters demonstrate the wisdom of these changes and the clear alignment of the management team. All these actions are part of our evolution over the last few years with significant activities in packaging and in printing. Our work remains solid and innovative. It is, therefore, with great pride that we were honored by the Chamber of Commerce Federation of Quebec and that we got a Mercuria, an award, for a business of the year. This award testifies to our successful entry into the packaging sector. It's a mark of recognition that I share with all of our colleagues. It's a very special day today. It's an emotional day for my entire family, our Board and our executives. As I mentioned just a little while ago, our founder, Remi Marcoux, is attending to a shareholder meeting as Founder Emeritus of Transcontinental. Remi, we're so proud to recognize your exceptional career and your great contribution to Transcontinental's vision, growth and development in keeping with your values. We continue your work, what you started as a Quebec entrepreneur -- a great Quebec entrepreneur, who has been a remarkable mentor for me for many, many generations. A member of the Order of Canada, an officer of the Order of Quebec, Remi has received numerous honors over the course of his career. These include an honorary doctorate from the HEC Montreal, a membership with the [indiscernible] and the Career award from the [indiscernible]. The U.S. industry has also recognized Remi as an exceptional entrepreneur by inducting him into the North American [indiscernible] Hall of Fame. Remi has always taken the time to place knowledge sharing with like-minded organizations at the top of his personal and entrepreneurial priorities. He has served on a number of boards, including the Board of Canadian Tire Corporation, HTC Mattia and the Fondation Lucie and [indiscernible]. He's an extraordinary philanthropist committed to United Way of Great Montreal, the Montreal Heart Institute has always supported his alma mater, the HTC. He has associated his name with the [indiscernible] and Remi Marcoux Chair in our management and more recently with the Remi Marcoux Entrepreneurial Trail. HC Montreal has renamed an entrance to the downtown pavilion [indiscernible] Andre Carmel and Remi Marco. My sister, Nathalie; my brother, Pierre; and I, along with our managers, proudly uphold this tradition of social commitment as does the company. Remi, we'd like to say congratulations. Brave. Thank you. Thank you, many times over. And one word to my mother, Carmel. This is an extraordinary woman who worked with my father as this dream of Transcontinental came to fruition. We owe her so much. In closing, I'd like to thank our loyal customers for their trust. We constantly go the extra mile for their success. I also salute the role played by each member of my Board, of our Board of Directors in Transcontinental's evolution. Their contribution is exceptional. And last but not least, thank you to you, our shareholders, for whom we work every single day to create value in the short, medium and long term. Optimizing, performing and evolving, these are our watchwords for the coming years. I'd now like to turn the floor over to our President and CEO, Thomas Morin.

[Interpreted] Thank you, Isabelle. Good morning, everyone. Good morning to all. I joined Isabelle in recognizing Mr. Marcoux's exceptional contribution. Remi, you have left so many remarkable achievements behind you. First, at Transcontinental with a whole generation of leaders who learned from you and we're inspired by you. And with our community, which has repeatedly recognized your commitment and generosity. You said it, Isabelle, your family continues Remi's social commitment with [indiscernible]. And I'd like to mention the volunteer by excellence awards you received from the associations of professionals in philanthropy in Quebec in 2023 as well as your appointment as the United Way Governor Emeritus of the organization. Isabelle, you're a model to us all. I'd like to speak to you, dear shareholders, for the first time as President and CEO. Nine months have gone by since I got this job, and I am very proud to lead a dynamic, enthusiastic team committed to creating value for you. Firstly, in 2023, our health and safety record improved again after reducing our accident rate by more than 20% in 2022, our teams reduced it yet again by 17% in 2023. I am grateful for all the hard work that has happened to achieve this performance. In the printing sector, we are pleased with our significant strides in innovation with raddar, our reinvented flyer. Successfully launched in May, raddar is a game changer in the retail space in Quebec with 2 million copies now distributed each week, up to 3.7 million at the beginning of May. Raddar offers an excellent value to Canadian retailers while protecting an important revenue stream for us. Our clients like this new product, consumers as well as flyers continue to help them find savings through the worst inflationary period since 1980. Raddar also represents an environmental gain, recyclable with the reduction of paper volume up to 60%, it contributes to the [indiscernible]. Lastly, as local newspapers are important for communities, we are happy to report that more than 20 weekly newspapers have accepted our offer of a free page in raddar. In packaging, one of the highlights of the year is our announcement of a major investment in recyclability by producing biaxially-oriented polyethylene or BOP, the first in North America. Our new equipment will be operational at our Staenberg plant in South Carolina this summer. This demonstrates our commitment to distinguish ourselves and gain market share with innovative sustainable solutions. With major investments during fiscal year 2023, we were still able to reduce our net debt by more than $180 million. This was possible, thanks to a strong cash flow from operating activities, which benefited from stable profits and tighter inventory management. To deliver on our 4 priorities mentioned by Isabelle, we must work together as 1 team. There are more similarities between our printing and packaging sectors than differences. To reflect that, I quickly made leadership changes to simplify our management structure and make us more agile, more collaborative and bring us closer to operations. When I took my new position on June 7, we announced our commitment to improve our performance in line with these priorities. We have already made good progress, and we are determined to continue on this path with the ambitious 2-year program outlined in December to improve our earnings per share and our financial position. This program is expected to generate between $20 million and $40 million in recurring savings. It includes 4 main categories: first one is reduction in fixed costs across the organization; the second, our measures targeting underperforming businesses through turnaround or consolidation of some of [indiscernible]; three, is the reduction of the cost of goods sold; and the last one, fourth, the sale of certain assets across the network. Several actions have already been taken as part of this program. By the end of Q2, we will have reduced our labor force by 6%. We closed the Montreal recycling plant last September and [indiscernible] packaging plant in early February and have announced the closure of our printing plant in [indiscernible] in April. We have realized important savings in the cost of goods sold. And finally, we have sold [indiscernible] property and sale processes are ongoing for 4 other buildings. Optimize, perform and evolve, as Isabelle mentioned, is our way forward. The printing sector continues to show resilience and to reinvent itself to grow again in some segments. The quality of our customer relationships is an asset we will continue to build up. In packaging, we are targeting profitable organic growth, a stronger return on our assets and advancing on our sustainable packaging journey. In closing, I would like to express many thanks. First to our coworkers and managers and our executives for their engagement, dedication and adaptability. As drivers of TC Transcontinental's unique culture and entrepreneurial spirit, they make us proud every day. I also thank the Board of Directors and the Marcoux family for their trust. None of our accomplishments would be possible, of course, without the loyalty of our customers and the partnership on their business challenges and aspirations. We are grateful to them. Finally, I thank you, our shareholders, for your trust and continued support. I'm fully confident in our ability to grow profitably and responsibly and creating for you, our shareholders. And I'll now turn the meeting over to our Executive Vice President and Chief Financial Officer, Donald LeCavalier.

[Interpreted] Thank you very much for being here today. I joined Isabelle and Thomas for underlying the exceptional career of our founder. I've learned a lot from him, and he was the one who helped me to understand that when I arrived at TC, cash is king. I will start my comments. 2023 results that we released in December. I will then move to our first quarter 2024 results which were released after market closed yesterday and then conclude with our outlook. In 2023, we faced volume pressure in our 2 main operating sectors. Despite the challenge, revenues in 2023 only decreased by 0.5% as the organic decline largely caused by lower volume was mostly offset by the favorable exchange rate effect and the impact of the acquisitions made during fiscal 2022. Consolidated adjusted EBITDA remained stable at $447 million for fiscal 2023. Despite the volume pressure, we were able to protect our profits by driving substantial growth, cost savings and efficiency across the organization. Higher financial expenses during fiscal 2023 were mainly due to the increase in interest rate on floating rate debt and by the effect of exchange rate fluctuation. This led to adjusted net earnings of $2.03 per share for the year compared to $2.19 in 2022. Moving to cash flows and our financial position. One of the highlights of fiscal 2023 was the strong free cash flows generated that we used to reduce our net debt. Our cash flows from operating activities more than doubled from $220.8 million in fiscal 2022 to $472.3 million in fiscal 2023. This increase is mostly due to the reduction of our inventories and lower receivables from the implementation of trade receivables purchase agreement. Despite a significant investment in CapEx. Our net debt ratio decreased from 2.47x at the end of fiscal 2022 to 2.06x at the end of fiscal 2023. Now moving to our results for the first quarter of fiscal 2024. For the first quarter of 2024, we reported a 3.8% decrease in revenues versus the same period last year. This decline was driven by lower volume and is aligned with the 2024 outlook we disclosed in December. Regarding profitability, we delivered a strong quarter with adjusted EBITDA of $96.1 million, $12 million improvement versus the $84.1 million in the first quarter of fiscal 2023. This 14% increase was mainly due to improved profitability in the packaging sector following cost reduction and efficiency improvement initiatives and also an improved product mix. Financial expense decreased by $2.8 million to $13.9 million, mainly due to a lower debt level following strong cash flow generation in the last 12 months, partially offset by higher interest rate. Adjusted income tax increased by $3.7 million due to higher earnings and effective tax rate resulting in adjusted net earnings of $0.43 per share for the quarter compared to $0.24 for the same quarter last year. Let's now turn to our outlook for fiscal 2024. For the packaging sector, despite the fact that economic conditions are likely to continue to have a negative impact on demand in the short term, we forecast a growth in adjusted operating income for financial year 2024 compared to financial 2023. For the printing sector, we expect lower volumes in our traditional businesses. However, this should be mitigated by our cost-cutting initiatives and the continued rollout of raddar. Finally, taking into account current economic conditions and the initial benefits of our program to improve profitability in our financial situation, we expect consolidated adjusted income -- sorry, operating income before depreciation and amortization to remain at least stable for 2024 compared to fiscal 2023. At the end of the first quarter of 2024, our debt-to-equity ratio has decreased 2x, and our financial position is solid. We expect to continue generating strong cash flows over the next few quarters. And combined with the reduction of our capital expenditures should be able to continue to reduce our net debt to equity ratio. In line with our 4 priorities, particularly when it comes to reducing our debt, the Board of Directors has decided despite the increase in cash flows to maintain the dividend at $0.90 per share per annum. This dividend represents a yield of over 6%, which continues to be attractive compared with the average for Canadian dividend stocks. Thank you very much for your trust. And I'd like to turn the floor back over to Isabelle Marcoux.

Thank you, Thomas and Donald. It's now a question period. This question period is reserved for shareholders. Christine, do we have any questions?

Madam Chair, we have not received any questions.

Thank you. On behalf of the company, I would like to thank you, dear shareholders, for attending this meeting. And thank you very much for your attention, and I look forward to seeing you again next year.