Transcontinental Inc.

Mesdames et messieurs, merci d'avoir patienté et bienvenue à la conférence téléphonique concernant les résultats du quatrième trimestre et de l'exercice financier 2021 de TC Transcontinental. Pendant la conférence, tous les participants seront en mode d'écoute seulement. Une période de questions suivra la présentation et des directives vous seront données à ce moment. Nous désirons vous rappeler que cette conférence est enregistrée aujourd'hui le 9 décembre 2021. Welcome to the TC Transcontinental 4th Quarter and Fiscal 2021 Result Conference Call. During the presentation, all participants are in a listen-only mode. Afterwards, we will conduct a question-and-answer session, and instructions will be provided at that time. As a reminder, this conference is recorded today, December 9, 2021. I'd like to turn the conference over to Yann Lapointe, Director, Investor Relations. Je voudrais maintenant céder la parole à Yann Lapointe, Directeur, Relations avec les Investisseurs. Monsieur Lapointe, please go ahead.

Thank you Juliane. Good afternoon everyone on the line and thank you for joining us on the call. Welcome to TC Transcontinental's fourth quarter and fiscal year 2021 results conference call. You can find the press release, the presentation and the annual MD&A with complete financial statements and related notes on our website at tc.tc under our investor relations section. A replay of this conference call will also be available on our website after the call. We have with us today our President and Chief Executive Officer, Francois Olivier, and our Chief Financial Officer, Donald LeCavalier. We also have with us Peter Bruce, who will succeed Francois and will officially assume the position of President and Chief Executive Officer tomorrow. Peter will also say a few words after Francois' remarks. Before I turn the call over to management, I would like to specify that this conference call is intended for the financial community. Media are in listen-only mode, and should contact Nathalie Saint-Jean, Senior Advisor, Corporate Communications, for more information or interview requests. Please be reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. You can refer to the MD&A for a complete definition and reconciliation of such measures to IFRS. In addition, the conference call might also contain forward-looking statements. These statements are based on the current expectations of management and information available as of today, and they involve numerous risks and some certainties, known and unknown. The risks, uncertainties, and other factors that could influence actual results are described in the fiscal 2021 annual MD&A and in the latest annual information form. With that, I would now like to turn the call over to our president and CEO, François Olivier.

Thank you, Ian, and good afternoon, everyone. This is a special day for me as this is my 56th and last quarterly earnings call as President and CEO of TC Transcontinental. Working with Peter and the management team on the transition over the last couple of months has made me reflect on the strong and resilient company we have built, our agility, and the success of our transformation. We have stood the test of time, overcoming challenges and adapting to major changes in our environment and in our business. When I became CEO in 2008, almost 80% of our revenues came from our Canadian operations, with the balance coming from our printing operations in the US and in Mexico. Our media sector represented close to $700 million in revenue, and a significant portion of this came from publishing magazines and newspapers, which were dependent on advertising revenue. A lot has changed since then. To date, we are a very different and diversified company. With most of our sectors were facing Edwin's 10 years ago, to date the large majority of our revenue comes from businesses with favorable prospects. While we continue to have a North American focus, we now have operations in eight countries, with half of our revenue generated outside of Canada. TC Transcontinental has transformed from being a Canadian company to an international organization that is more resilient than ever, whether it be to economic shock or technological change. The results we released today reflect this resilience. Our 2021 performance shows that our business is solid. When excluding external factors like the Canadian wage subsidy, the price of resin and the exchange rate, we delivered a much higher consolidated EBITDA than last year. In packaging, we saw an unprecedented rise in resin prices. Almost every single month saw a new increase. In addition, the Canadian dollar declined versus the U.S. dollar, making the comparison with 2020 much harder. But we stayed focused on what we could control. we work diligently to pass through the higher resin prices as per our contractual agreements to minimize the negative impact. Looking at fiscal year 2021 as a whole, when excluding the impact of higher resin prices in the additional week, we delivered an organic revenue growth close to 2% and an EBITDA margin of over 16%, which is in line with what we have said at the beginning of the year. And printing, We suddenly lost close half of our revenues in March of 2020 when governments put in place measures to limit the spread of COVID-19. Despite the continued impact of restrictions on our customers, our revenues gradually began to recover. In fiscal year 2021, our revenues grew despite the fact that we face a tough pre-COVID comparable for the first five months. As we continue to improve our efficiencies, and benefited from a higher volume, we delivered an adjusted EBITDA margin of 21.3%, excluding the Canadian Emergency Wage Subsidy. That's an improvement of 120 basis points over fiscal year 2020 and 130 points over fiscal 2019. How did we achieve this resilience? Our decision to move into flexible packaging over seven years ago proved to be the right one. We started slowly, taking the time necessary to build our industry knowledge, build our team, while delivering great value to our customers. And then, in 2018, we took a big leap with our acquisition of Covers America, a pivotal moment for our company. And again, We took the time necessary to stabilize the business, increase margins by delivering on our synergies, and now we are seeing the results. As we continue to make acquisitions and grow organically through innovation by developing sustainable solutions for our customer, the percentage of revenue coming from a stable sector like flexible packaging will continue to rise, and this will serve to protect us in times of economic challenges. By continuing to generate strong free cash flow in the long term, our printing sector will participate in our growth and play a key role in our future. Here's why. We have seen another transformation in our printing sector portfolio. Thirteen years ago, newspapers, magazines, and catalogs printing represented a significant part of our revenue. Today, following the secular decline in those industries and our strategic portfolio management, only 15% of our printing revenue comes from these markets. Over the years, we successfully adapted our printing platform to the market and improved our cost base. We also offset some of the lost revenue by expanding into new verticals, like in-store marketing. We grew the in-store marketing business from about $12 million in revenue 10 years ago to a run rate of around $200 million today. And this is only the beginning of our ISM journey, as we have a long way to go and to grow. When we include other growing activities like book, pre-media, and also factoring our growing media revenue, These growth activities represent today around 35% of the combined revenue of our printing and media sectors. That percentage had increased significantly over the last five years, and we expect that it will continue to do so organically and through acquisitions. As they grow, these activities help stabilize print's overall revenues by offsetting the decline of other activities. Print is actually undergoing A similar successful transformation as TC Transcontinental went through with its move into flexible packaging. Finally, another important strategic shift has been in our media sector. Over the last several years, we sold almost all of the publishing assets to retain only those related to education and to the construction industry. Markets that are not dependent on advertising revenue. and these have proven to be not only resilient, but growing as well. I am proud that we have successfully transformed TC Transcontinental and each of our three sectors, and I'm equally proud that we did so while maintaining a strong balance sheet. While we always used leverage prudently, we were not afraid to take calculated risks when opportunities showed up. For example, we invested over $800 million 13 years ago, to build a state-of-the-art national print platform, a key strategic move that led to our successful consolidation of the Canadian print market. The success we have today in our print sector is, in part, a direct result of these investments. We were not afraid to do it again in 2018 when we acquired Coverse Americas for $1.7 billion, another key strategic move The cement are moved into flexible packaging. We then successfully integrated the acquisition and delivered on the plan synergies and our margin improvement objectives. And each time, we use our strong and stable cash flow from operations to bring the debt level back below two times in order to be ready for the next opportunity. This sound financial management is another one of our strengths. We can do this again given the opportunity. I am leaving today very proud of what we have accomplished as a team. Simply, we did what we say we would do. We transformed the company by divesting assets in declining markets and entered a flexible packaging space. We also built a strong printing sector with solid profitability and growth potential in a significant portion of its portfolio. I am confident that TC Transcontinental has a bright future for three simple reasons. First, our strategies are sound and have put us in a leading position in the three sectors we operate in. Second, our solid financial position gives us the means to achieve our ambitions. It allows us to continue to invest and transform our print and media portfolio and to grow our flexible packaging platform while delivering on our sustainability objective. And third, we have an experienced and talented team with Peter, a great successor, lined up the right person for the job. Unified by a strong corporate culture, the team is working together with a common long-term vision. Finally, I'd like to thank our employees for the many years of hard work and dedication, the customer for their confidence, the board of director and the Marcu family for their guidance, trust, and support over the year, and finally you, our analyst and investor, for a productive relationship over the years. As a credit to you, many of your program questions have helped us refine our thinking. Your feedback and advice over the years has been much appreciated. With that, I'll turn it over to Peter.