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spk00: La parole est à Yann Lapointe, directeur relations avec les investisseurs et trésorerie. Monsieur Lapointe, please go ahead.
spk06: Thank you, Joël, and good morning, everyone. Welcome to Transcontinental's first quarter fiscal 2024 earnings call. Before we begin, please note that our quarterly report, including our MD&A, our financial statements and related notes, as well as the slides supporting management's remarks, are available on our website at www.tc.tc under the investor relations section. A replay of this conference call will also be available on our website shortly after the call. Please note 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. We have with us today our President and Chief Executive Officer, Tom Amorin, and our Executive Vice President and Chief Financial Officer, Donald LeCavalier. As referenced on slide two, 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 these measures to IFRS. In addition, this 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 uncertainties, known and unknown. The risk, uncertainties, and other factors that could influence actual results are described in the fiscal 2023 annual MD&A and in the annual information form. With that, I would like to turn the call over to our president and CEO, Thomas Marais.
spk02: Thank you, Yann, and good morning to all. As you may have seen, we're holding our annual meetings of shareholders broadcast later this morning, and I hope you can join. As you've seen, we had a solid first quarter, mostly due to our cost reduction initiatives, as well as early gains from our program to improve profitability and our financial position, which we announced last December. I thank all our teams for their excellent and timely execution. Continuing to focus on our priorities, first on growth, we are pleased with our increased 14.3% in adjusted EBITDA, despite the decline in volume from soft market demand. Second, delivering on strong return on assets, and in line with our December program, to which I will come back later, we have announced the closing of our Saint-Hyacinthe printing plant in April with the end of Publisac. On third, reducing our debt with a strong free cash flow and brought our net debt ratio to exactly two times at the end of Q1. And fourth, pursuing our sustainability agenda, we're progressing well with RADAR and with the installation of our BOP line a cutting-edge monomaterial recyclable packaging solution, and a first in North America, which is expected to start production in Spartanburg this summer. Now, turning to our sectors, packaging is off to an excellent start. The soft demand environment affecting us, particularly in the industrial and medical markets, was more than offset by our cost improvement measures, a more favorable product mix, and a recovery in our Latin American operations performance. While uncertainties remain regarding short-term demand, we're supporting the needs of our customers to accelerate the commercialization of recyclable packaging and the drive to create a more secure economy for plastics. With the deployment of our new equipment linked to our strategic investments, we're encouraged by the market's interest in our sustainable solutions. Now, in our printing sectors, our cost-cutting initiatives have enabled us to offset the continuing difficulties in our book printing business, where we've been testifying our business development activities, and we will continue to manage costs diligently. In our retail services, we are encouraged by opportunities, including the continued rollout of Radar, with 2 million copies now distributed each week in Quebec, up to 3.7 million copies at the beginning of May, as well as in our ISM and pre-media activities, all doing well in Q1. Finally, as said earlier, we are pleased with the early results of our two-year program to improve our earnings per share and our financial position. By the end of the second quarter, with the closure of Thomas, Wisconsin, and Saint-Hyacinthe, Quebec, and the other staff reductions across the organization, we would have reduced our overall workforce by 6%. We have also achieved significant reduction in our cost of goods sold. And on the real estate front, since the sale of a building in Quebec City, we have launched sales processes for four other buildings. Now, some of these decisions, combined with the end of COBLISAC, had a regrettable impact on employment for our affected employees and their families. I sincerely thank them for their dedication and accomplishment today.
spk09: Now, over to you, Donald. Thank you, Thomas, and good morning, everyone. Moving to consolidate numbers on slide five of the earnings call presentation. For the first quarter of 2024, we reported a 3.8% decrease in revenues versus the same period last year. This decline was caused by lower volume, mainly in our printing sector, and was aligned with the 2024 outlook we disclosed in December. Regarding profitability, we delivered a strong quarter with consolidated adjusted EBITDA of $96.1 million a 12 million improvement versus the 84.1 million in the first quarter of 2023. This 14.3% increase was mainly due to improved profitability in the packaging sector following cost reductions, efficiency improvement initiatives, and 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 upset by higher interest rates. Adjusted income tax increased by $3.7 million due to higher earnings and effective tax rate, resulting in adjusted net earnings of 43 cents per share for a quarter compared to 24 cents for the same quarter last year. Now moving to slide six for the sector review. In packaging, we generated revenues of $405.7 million, down to 1.8% versus last year. The decline is mostly due to lower volume, mainly in the industrial and medical markets, due to the economic conditions, and was partially offset by a stronger U.S. dollar. In terms of profitability, despite lower volume, adjusted EBITDA in packaging grew 29.6% to $60.4 million. This increase is mainly due to our cost reduction and efficiency improvement initiatives, as well as a more favorable product mix. This solid performance led to a 15.2% EBITDA margin, a 370 basis point improvement versus last year. Moving to printing on slide seven, revenues decreased by 7.4% to $265.1 million. This was mainly due to lower volume in our magazine and book printing activities. Printing adjusted EBITDA was $39.5 million for the quarter compared to $40.6 million last year. Excluding the $1.5 million impact from exchange rates, Earnings grew organically by 0.4 million as lower volume was offset by our cost reduction initiatives. Corporate expense were negatively impacted by 0.8 million higher share-based compensation expense in Q1 following the stock performance. Turning to cash flow. Considering the typical seasonality of working capital, Q1 2024 was a good quarter. we generated $57.4 million from operating activities compared to $12 million in the previous year. The $45.4 million increase was mainly driven by improved working capital. Our capex at $36.6 million were $14.6 million lower than last year and was in line with our full year guidance of around $135 million. The strong Q1 growth Earning growth combined with our cash flow performance led to an improvement in our net debt ratio to two times at the end of the quarter compared to 2.06 times at the end of fiscal 2023. It's important to note that our ratio was at 2.63 times one year ago and that we reduced our net debt by over $245 million over the last 12 months. Looking ahead, we expect to continue to generate significant cash flow that will allow us to continue to reduce our net debt in fiscal year 2024. In closing, we are encouraged by the cost-saving and efficiencies improvement we are seeing across the organization. We started the year strong and delivered a $12 million EBITDA growth in the first quarter. However, the comparable will be significantly tougher in the second quarter. On that note, we will now proceed with the question period.
spk00: Merci, Mesdames et Messieurs. Nous allons maintenant procéder à la période de questions et réponses. Si vous avez une question, veuillez appuyer sur la touche étoile suivie du 1 sur votre téléphone à clavier. Une tonalité se fera entendre confirmant votre demande. Les questions seront prises tant lors qu'elles auront été acheminées. Veuillez également vous assurer de décrocher le récepteur de votre appel téléphonique si vous utilisez la fonction main libre avant d'appuyer sur la touche. Un moment, s'il vous plaît, la première question. Thank you. One moment, please. Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press star, followed by the one on your touchtone phone. You will hear a tone acknowledging your request. Your questions will be pulled in the order they are received. Please ensure you lift the handset if you are using a speakerphone before pressing any keys. One moment please for your first question. We now have a question from Adam Schein with National Bank Financial. Your first question comes from Adam Schein with National Bank Financial. Please go ahead.
spk05: Thanks a lot. Good morning. I guess your efficiencies extend to this call. In terms of book printing, Thomas, can you talk about the issues? I know we saw a bit of those issues creeping in last year, but just curious if they're the same or different in nature.
spk02: Yeah, thank you, Adam. Indeed, the demand, and we would have reported on that, I think, two quarters last year, Q3, Q4. The Q1 was no different in terms of book overall demand. The reasons remain the same, and the ease of the supply chain opened up again imports from Asia, which was the case before the pandemic. The two things have changed, though, since last quarter. First, we've significantly improved our operational performance in the book segment, so there was a lot of support from the network to help reduce waste and improve efficiencies, point number one. And the second thing we've launched, we mentioned that we've launched a pretty thorough business development activities in terms of volume gains across North America. Our share of wallet in books is not great. I mean, we're about to 20, 30%. And we have room for growth. So basically, we now engage in growing the top line with a thorough business development and prospection activities across North America.
spk10: Can you talk a little bit about...
spk05: Sorry, go ahead.
spk02: No, no, please go ahead.
spk05: Oh, sorry about that. Can you shift over to radar? I mean, you talked about volumes, but obviously last year was a year where you launched the product and started to expand some of the distribution opportunities. Maybe elaborate a little bit further on that.
spk09: Radar. Radar for North America in general? No, radar.
spk05: No, radar, you know, evolving distribution across Canada?
spk02: So two things to say, or three things to say on radar. First, the rollout in Quebec goes very well. The acceptance, the welcoming of the product is strong from our customers and the consumers. And as we could mention, we will reach 3.7 million copies by sometime this spring, as early as possible. In the meantime, we're investigating other opportunities outside of Quebec, making good progress in British Columbia, where we already distribute 400,000 copies and aiming at more as we speak. Now, the third is on Ontario. We've positioned radar in the context of the distribution concerns we had back in September, as you'll remember. Meanwhile, the distribution has stabilized of standard flyers, has stabilized in Ontario, and we actually post the rollout of radar there, acknowledging that the customers are comfortable with the current state of distribution today. Product is still obviously available and will be, I would say, pushed in case of any need moving forward. So in summary, good progress in Quebec. Good leads in the west of Canada, and we're ready to roll it elsewhere in case of any need from our customers.
spk05: Okay, thanks for that, Thomas. One last question. You referenced the fact that you're pleased with some of the deployment of the new equipment, the BOP line. Is that largely completed, the deployment, such that we don't necessarily see any usual equipment positioning dislocations that tend to occur in certain periods of the year when that indeed is happening? Is that largely done? And as you said, you begin production in the summer or more to be done there?
spk02: So we have a net packaging specific now. So in 2023 and beginning of 2024, we have basically three large strategic investments happening in North America. One is the one you mentioned, which is the BOP line in Spartanburg, which is going to be powered sometime this month. And we will start debugging and producing test reels Spring, early summer, and that's why we believe and we're confident in the capability we have to commercialize the product in the second part of the year. Two other investments are almost complete, if not fully complete. One in Clinton, Missouri, dedicated to dairy, and another one in Tulsa, Oklahoma, for the meat segments. Those two large investments, we're talking in the region of $30 million each, are vastly complete. Clinton is operational this month. and we already see some nice pool. And Tulsa is about 60% done, and also some nice commercial pools as well there. So going in the right direction, very much in line with what we said in the last years, very much in line with our segment focus.
spk05: Great. Thanks for that. I appreciate it. That's it for me.
spk00: Your next question comes from Amir Patel with CIBC Capital Markets. Please go ahead.
spk04: Hi. Good morning. Thomas, just starting on the printing side, given the salt wire creditor protection filing in Atlantic Canada this week, what type of impact would you expect for TC?
spk02: I was expecting this question. Thank you for asking it. Well, listen, this is fresh news from two days ago. That being said, it's something we had anticipated somewhat. We're not very much exposed to the salt wire activities. We directly connected with our customers out east. We connected, obviously, with them, and so far the business is as usual. Out of the 1.1 million doors, 660,000 doors are delivered by Canada Post already. So we don't expect, to be very clear, we don't expect a significant disruption. Actually, on the contrary, we investigate opportunities out east. So, so far, very close monitoring, no impact to us financially, nor on our balance sheet, and commercially something that we believe we're in a good position to manage.
spk04: Okay, great. Thanks. That's helpful. Just on the packaging side, can you comment on what you're seeing on the cost side for resins and how you position there from an inventory standpoint?
spk02: I know that's a question that has been asked across the industry. Resins have slightly decreased from last year. There is some of this impact. Not a massive impact on our P&L, though. We don't expect to see this further weakening. The projections we see on resin are pretty much stable for the rest of the year. Invanary positions are back to where they should be, so we're down to less than a month of invanaries, which explains the working cap improvement Donald mentioned earlier. So I guess this is the answer to your question, Amy.
spk01: Great. Thanks. That's all I had.
spk00: I'll turn it over. Your next question comes from Mayor Yagi from Scotiabank.
spk03: Please go ahead. Good morning. I wanted to ask you about the cost reduction initiatives that you have started a couple of months ago. We saw significant improvement on earnings. Can you help us understand what's left in terms of incremental profitability gains that you expect to achieve from these initiatives, both on the printing and on the packaging? I'll have a follow-up question on that after.
spk02: Thank you for the question, and great to talk to you again. We've announced this improvement plan back in December, and the target has been $20 to $40 million over the next three years of recurring profit improvements. We had a pretty solid start of the year in Q1, driven by the different components, some of which have been addressing underperforming sites, others addressing fixed costs and structured costs, which has progressed well. We've also started some good work in terms of cost of goods sold, including waste improvement and efficiencies. So we're in line with our plan, if you will, and early start. I mean, good progress. The team has been excellent and delivered good results in Q1. So in line with what we've announced for the full two-year period, which is $20 million to $40 million.
spk03: Okay, great. So the plan remains on track and those numbers remain achievable. In terms of the packaging on the volume side, you're not alone seeing these pressures on the volume side in packaging, but what can you say about your view going forward specifically to some of the industries that have affected you and
spk02: in general if you wanted to if you can comment maybe on your expectation for volumes in 2024 what you know how would you characterize the environment right now yeah thank you for the question that's obviously the uh the focus as we as we made some good progress on our on our cross positions obviously we we monitor uh our top line like extremely close um a lot of things to say if you will but to make it to make it short uh 80 of what we do is food related And on the food, I'm talking packaging here. On the food-related activities, there is no more destocking in my view. And I think I mentioned that in our Q4 results. What we see, depending on the segments, is a lower demand, but not massive, related to inflation, probably. On this very part, we see some signs of improvement, driven by the retail services starting to promote more at the beginning of the year. which is encouraging moving forward, yet a bit too early to confirm. Now, on the non-food activities, which is industrial and medical, industrial has been low for the last 12 months. It's a bit the same discussion as on books. It's been low because of the high interest rates in North America, which has slowed down construction activities. So this remains the same. On the third door, medical, medical is where there is still some high level of inventories, and we don't expect this to turn before the second half of the calendar year.
spk10: That's our best estimate at this point in time.
spk03: Thank you. Thank you for this. And maybe one last question on leverage. You're continuing to reduce leverage. Can you remind us what are your objectives at which point you might decide to reallocate some of the cash flows away from just reducing straight up debt and reallocate it differently in terms of excess cash flow? Thank you.
spk09: We don't have any specific objective of target to be. We're definitely more comfortable to be below 2, so we're required IP to be there at this moment. But we don't have a specific objective. I remind you that when we bought Covris at the time, we had almost no debt on the balance sheet, and we were quite happy to be in that position at the time. So it's not because we will be closer to 150 by year-end that we'll say it's the time, but it definitely put us in a position to be back on action regarding M&E. But we don't have any specific objective, but as I said in my opening remarks, pretty glad to be at 2 this morning compared to 262 last year.
spk01: great. Thank you very much.
spk00: Votre prochaine question vient de M. Drew McReynolds with RBC. Your next question comes from Drew McReynolds with RBC. Please go ahead.
spk08: Thanks very much. Good morning. Just a couple of follow-ups first. I think, Thomas, on your opening remarks, you said there are four other properties in progress in terms of sales. Do you have any sense of timing of when you'd realize more in non-core real estate sales?
spk09: I agree with Donald talking. Regarding timing, as Sam has mentioned, we have four buildings in the market right now, so we're positive that we should have action in this fiscal year. Having said that, we don't put pressure on ourselves. We want to get the best pricing, so we won't push to close it this year, but I would say that we're cautiously optimistic to have some of them closed this year.
spk08: Okay, great. And just back to book printing, are you at a point where you're just simply lapping tougher comps or is there incremental pressure here kind of sequentially as you go through kind of this fiscal year?
spk09: If I get your question, you know, Q1 last year was good on the book side and we started to feel, see two things happening last year at the beginning of fiscal last year is that First, I will say the post-COVID effect where, you know, the demand went down a little bit. And then, as Thomas mentioned, the Asian market reopened. So those two happened at the same time. And we had some issues also internally on the operations side that we're fixing. And actually, one of the reasons that the impact on the bottom line is not as heavy in this quarter is that we took action on that side. And now, as Thomas mentioned, we're taking action on the sales side. The further we'll go in fiscal 24, the comparable will be not as tough as this Q1 for sure on the book side.
spk08: Yeah, yeah, understood. Okay, that's great. And then last one for me, just on the printing margin side, you know, clearly you're seeing you guys hold the line on that. In terms of just the impact of the plant closure as we look forward, is there anything kind of material you want to flag on that or just all part of sustaining printing margins going forward?
spk09: Well, yeah, it's been, as you know, Drew, it's been an objective to always try to maintain the higher teams margin on the printing side and free cash flow. You know, we don't have the effect of the closing in the first quarter, and we finished at 14.9 compared to 14.2. So we're confident that over fiscal 2024, we should be better. You know, the efficiency of Sentai will kick in probably more on the On the second half, radar is still on a transition for us, so it's good in the first quarter. When we compare to last year, we didn't have Montreal last year, and obviously that should improve also for the rest of the year. So positive to be ahead of last year regarding margin.
spk10: Okay, thank you very much.
spk00: A question question to Mr. David McFadden with Cormark Securities. Your next question comes from David McFadden with Cormark Securities. Please go ahead.
spk07: All right. Thank you. So I just want to, first of all, just talk about the organic growth outlook on the packaging side. So as you stated earlier, 80% of your business is food related. So that would seem to imply that the decline on industrial medical was fairly high, I guess, high single digit. I don't know if you can comment on that. And then barring a change in the economy, do you kind of expect that the packaging organic decline would sort of be somewhat similar to Q1 for fiscal 24?
spk02: Yeah, thank you for the question. A couple of comments here. Industrial has been down from more than a year. So if you compare it to year over year, the decline is not massive. on the industrial part of the business. If anything, it has to grow now. That would be my view, because we've probably reached the bottom of it. On the medical side, that's fairly newer. That started more in end of Q4, I would say to you, and Q1. And we're talking about a double-digit demand reduction, which is no different than what you would have probably read across the industry. We're actively talking to our customers to understand how long is this going to last and also accelerate some of the funnel of opportunities we have in the medical segment. Now, your question for the rest of the year in the food part, I'd say two things on that. The Q2 last year was extremely strong in demand in the food segment. I think we mentioned that. This led to a pretty strong result level in transcontinental in Q2. the demand in food is not as strong as it was last year. Remains solid, but not as strong as last year. Last year was an anomaly, if I may say anything. For the rest of the year, though, beyond Q2, I think we should see some nice pick-up, given what I said. Seasonality should help, as well as the promotional activities of most of the retailers.
spk07: Okay. And then just on the packaging, the down margin, obviously it was up quite a bit, and the first quarter, do you think you could maintain this level now?
spk02: What's controllable is under control. So what we've done in the first quarter, anticipating on the software demand, is to put our costs under control. This shall remain. There is no reason why this should go away. Again, the volatility of demand is something we can't control. So as a percentage, it's a difficult question to answer given the two components of the equation. But as far as I see, our cost base is now in a good position and shall remain strong.
spk09: And also Q1, adding on the cost base, the mix was in the right direction. That did help. And we said last year that we were aiming at being above 15%, and that's what we reach in Q1, and we intend to keep that pace for sure.
spk07: Okay. And then just on the printing side, The in-store marketing, I think that's growing at a pretty good clip. Can you give us an idea what the growth is for that segment?
spk02: I think there are two things to say on ISM. First, yes, indeed, happy with the growth we're running as per our strategy and our plan. That being said, it's also not happening by chance. There is a really high level of synergies between our retail services namely the flyers and the ISM. We're talking to the same customers, and we're very happy with the funnel of opportunities we see moving forward in the ISM.
spk07: Okay, but no indication of growing 10%, 20%?
spk09: In the quarter, the business, ISM for us was roughly 4% growth on the top line.
spk07: 4%. Okay.
spk09: It's been growing. We're very happy with this business. It's been growing. As you see, we had great acquisition, and now it's north of $250 million. And 10 years ago, we had close to $5 million. So it's quite a transformation on the printing side also.
spk10: So it's a good business for us and still growing.
spk07: Okay. And then lastly, can you give us an idea what the net proceeds would be from the real estate sales?
spk09: You mean the outcome, the money outcome? We mentioned that the first wave should bring, you know, we have a value of building of about $100 million. Having said that, without going into too much detail, the tax value of those buildings is quite low because those are buildings that we own for a long period of time. So... you should deduct, you know, obviously some millions of dollars to get back to a government of Canada, but so that's the target.
spk01: Okay. All right. Thank you.
spk00: Ladies and gentlemen, once again, if you have any additional questions, please press the star button. If you are using the hands-free function, please hang up Le récepteur avant d'appuyer sur les touches. Ladies and gentlemen, if there are any additional questions at this time, please press star followed by the one. As a reminder, if you are using a speakerphone, please lift your hands up before pressing any key. Votre prochaine question vient de Nevan Yoshim avec BMO Capital Markets. Your next question comes from Nevan Yoshim with BMO Capital Markets. Please go ahead.
spk07: Thanks. Good morning, guys. On the printing segment, I was just wondering if you're a little bit more optimistic about the 2024 outlook relative to what you were forecasting last quarter. It just looked like given a few wordy nuances in the outlook section, it was a bit more positive.
spk02: I think we're doing everything we can to control what happens in this segment. The launch of new products obviously gives us good hopes. But again, it's very volatile as we talked already. We had a strong Q1 in the demand for flyers. The radar looks promising and is promising. Is this giving us an overall optimism of other year? It's a bit too early to say in my view. Let's see what Q2 shapes out. The level of promotional activities was good in the beginning of the calendar year. Let's see if it continues in the future.
spk07: Okay, great. And then maybe just on printing margins, can you comment on the outlook for the balance of the year? I think at Q4, you said maintaining margins would be tricky. I just wonder if you have any better visibility into this.
spk09: Well, as I said earlier, we're ahead of the margin if you compare to last year, and radar should be positive overall regarding margin. First, there's an impact of selling less paper, so it does play positively for margin because the top line will be lower, and radar is positive for us. And we think that St. I should bring also some synergy in the second part of the year. So overall, You know, we want to protect the margin for this business, the free cash flow, the most important thing. So we're confident to be ahead of last year regarding margin.
spk01: Great. Thank you. Il ne semble plus d'avoir des questions.
spk00: Mr. Lapointe, there are no further questions at this time.
spk06: Thank you, everyone, for joining us on the call today, and we look forward to speaking to you soon.
spk00: Mesdames et messieurs, ceci termine l'appel conférence pour aujourd'hui. Merci de votre participation. Vous pouvez maintenant raccrocher. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.
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