[Non-English content] Welcome to the TC Transcontinental First Quarter of Fiscal 2022 Results 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 being recorded today, March 8, 2022. I would like to Mr. Lapointe, please go ahead.
Thank you, Julianne, and good afternoon, everyone. Welcome to TC Transcontinental's presentation. The press release and the MD&A, along with complete financial statements and related notes that were issued earlier today, are all available on our website at tc.tc under the 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, Peter Brues, and our Chief Financial Officer, Donald LeCavalier.
Before I turn the call over to management, I would like to specify that media are in listen-only mode and should contact Nathalie St-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, 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 risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements are described in the 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, Peter Brues.
Thanks, Yan. Impact on our operations was significant. In December and January, we had about the same number of COVID absences. Challenging context, I'm proud of the way our organization communicated openly with our customers. It is in adverse situations where direct communication and working together to solve issues build stronger bonds. I'm convinced these relationships position our business for future growth. That said, our financial results were below our expectations.
While we did see small organic growth in packaging, labor shortages limited our capacity and ability to respond to increased demand. This inability to supply, combined with labor inefficiencies and a lag in the pass-through of inflationary increases had a negative impact. The virus did impact retail decisions to augment in-store marketing and advertising flyers. The business grew organically 3.5%. This demonstrates the underlying growth characteristics of our in-store marketing and book segments.
This growth compensated for labor-related operating inefficiencies and resulted in a solid financial performance. Our media business had another quarter with solid sales and profit growth. Despite a tough quarter as a level of COVID absences has reduced to pre-Omicron levels, and the pass-through of inflationary increases in packaging is being well executed, all of which causes us to remain confident in the prospects of all three businesses. With that, I'll hand it over to Donald LeCavalier.
Thank you, Peter. Now turning to slide five of the earnings call presentation. For the first quarter, we reported consolidated revenues of CAD 690.6 million, an increase of CAD 68 million or 11% versus last year. This revenue growth was driven by price increases in packaging following the pass-through of higher resin costs to our customers by the acquisitions of H.S. Crocker in the packaging sector and BGI Retail in the printing sector. In addition, we generated organic growth in all three of our sectors.
Currency translation, mainly from the stronger Canadian dollar, negatively affected revenues by CAD 8.1 million in the quarter. On the profitability front, consolidated adjusted EBITDA was at CAD 89 million for the quarter, compared with CAD 108 million for the same quarter last year. About half of the difference is due to the Canadian wage subsidy received in Q1 last year, which did not repeat this year.
In addition, we had a significant operational disruption related to the Omicron variant in the months of December and January. Reduced labor availability caused operating inefficiencies that led to lower profitability. Financial expenses decreased slightly from lower debt versus last year. The tax rate was at 24.3%, leading to adjusted net earnings of CAD 0.35 per share for the quarter.
Now moving to slide six for the sector review. In our packaging sector, we recorded organic revenue growth of CAD 40 million. While this was mainly due to the pass-through of higher resin prices, it also includes volume growth of about 1%. This growth reflects our efforts to ensure continued supply for our customer in the face of operational disruptions from labor shortage. The disruption limited our revenue growth but generated a higher backlog. Finally, the November acquisition of H.S. Crocker contributed CAD 15.1 million of revenues.
As I mentioned earlier, the significant disruption from the Omicron variant caused inefficiency and incremental costs that had a significant impact on packaging profitability in the quarter. In addition, we were impacted by the lag in passing through higher costs on many fronts caused by inflation. We are taking action to solve these challenges, and we expect to see positive effects during the remainder of the fiscal year, more so in the second half.
On slide seven, you can see that our printing sector had another strong quarter with CAD 21 million of revenue growth versus Q1 last year. The acquisition of BGI Retail last year contributed CAD 11.2 million of revenue for the quarter. We also saw strong organic growth, especially in the in-store marketing business. Printing adjusted EBITDA for the quarter was CAD 56.8 million compared to CAD 61.1 million in Q1 2021. This is a solid performance in a challenging environment, considering that the wage subsidy was close to CAD 9 million last year.
The sector's adjusted EBITDA margin for the quarter was at 19.2%, a 10 basis point improvement from last year after excluding the subsidy. Our media business had a good quarter with both revenue and EBITDA growth. Corporate expenses were higher than last year related to non-recurring costs, including the CEO transition and from stock-based compensation.
Turning to cash flow, we generated CAD 87.9 million in cash flow from operating activities before change in non-cash items and income tax paid. We had a significant working capital usage in the quarter of CAD 64.9 million, due mainly to higher inventory. CAD 9.4 million compared to CAD 9.1 million in the prior year. Our investments in CapEx at CAD 34.2 million were in line with last year. These investments position us to capture growth opportunities and will contribute to the achievement of our 2025 sustainability targets.
Our net debt ratio increased to 2.3 times at the end of the quarter, following our capital investments. The acquisition of H.S. Crocker and working capital requirements had lower EBITDA. We expect the ratio to decrease back to below 2 times in the coming quarters, given our improving profitability and cash flow generation. Despite our investments, we continue to maintain a strong financial position with over CAD 350 million of available liquidity at the end of the quarter. We distributed CAD 19.5 million in dividends.
The board decided to maintain the dividend at the current rate of CAD 0.09 per share per year, which represent a yield of 4.5% based on yesterday's closing price. This decision was based on uncertainty regarding the economic and geopolitical environments and the continued risk related to COVID-19. We are committed to deliver on full-year fiscal 2022 outlook despite this difficult quarter. Packaging, we expect to generate organic growth in fiscal 2022.
We expect profitability to improve given the actions we have taken and the reduction in the number of absence related to Omicron. This will lead to an increase in adjusted EBITDA moving forward. In print, we expect volumes to continue to recover. We also expect to see continued growth in our in-store marketing, book printing, and other growth activities. This gives us confidence that we should see higher revenues in fiscal 2022 when excluding the extra week of 2021.
In terms of profitability, we expect an increase in adjusted EBITDA for fiscal year 2022 to 2021. This excludes the impact of the wage subsidy and the additional week in 2021. We expect corporate costs at the EBITDA level to be around CAD 40 million for the year, despite a higher amount in the first quarter. Regarding the use of cash for the year, as we said last quarter, we will continue to pursue potential acquisitions and invest significantly in our future through our CapEx program.
CapEx in fiscal year 2022 is likely to be similar to 2021, contingent on the timing of key investments. We expect our tax rate will continue to be in the mid-20s%. We now expect cash taxes to be closer to CAD 80 million for the year, reflecting the higher than usual cash tax in Q1. On that note, we will now proceed with the question period.
[Non-English content] Thank you. One moment, please. Ladies and gentlemen, we will now conduct the question-and-answer session. If you have a question, please press star followed by the number one on your touchtone phone. One moment please for your first question. Our first question will come from Drew McReynolds from RBC Capital Markets. Please go ahead. Your line is open.
Yeah, thanks very much, and good afternoon. A couple for me. You know, obviously a tough quarter, so I'm sure a hard day for everyone across the board. Percent range. I think everyone was certainly well aware of kind of the margin dynamics here in the near term. I just want to kind of confirm, given all of the kind of moving parts here in terms of headwinds and what you endured through the quarter. Do you see any change to you know that kind of medium-term target that you've spoken about again at that 16%-17% level?
Then secondly, just over to printing, maybe if you could provide an update on just flyer volumes and dynamics there. Again, probably an unusual quarter, given some of the new restrictions, but, you know, where do we stand, in terms of the outlook, on the flyer side? Thank you.
Yeah. First, on the margin side, as we said many times last year, you know, the impact of the resin increase, and again this quarter we had a huge impact on the top line and a less significant impact on the bottom line. Still we had an impact this quarter that plays against us regarding margins. To say when we will be back at 16 will be the equivalent of making a call when the PP price, the resin price will go back to what it was like 18 months ago.
This is not something that we know, that we're aware today, and we won't make calls on that. This will get harder and harder to say when the 16% is available. What we're looking for us now is more to grow the EBITDA. This is where obviously the margin is not at the level we wanted in the Q1, but at the end of the day, it's the EBITDA dollars are not at the level we want in Q1.
In terms of on the printing side, we're happy with the result that we had in Q1, but we definitely still see some impact on. We saw the impact on Omicron on the printing side also. This is mainly on the flyer side and even on the ISM side. ISM was good in this quarter, but without Omicron, we're sure that ISM would have been better because there were still some delays and we had to deal with that.
We had employees, we were having difficulties to get in the store. We were affected on that side, on the printing. Obviously, we were good overall versus last year. You know, excluding Omicron, sure we would have been in a better position today.
If I could just follow up just on it's great to see you reiterate fiscal 2022 outlook. You know, I know with a lot of things going on globally and a lot of the inflationary pressures is just bringing you know recession into the narrative from you know obviously not just for your industry, but across all industries. Can you just remind us, Donald or Peter, we've seen a relatively resilient printing revenue base through the years from TransCon relative to printing peers.
Just remind us on the relative resilience on the packaging side, just given you know this would be potentially a new business going through a little bit of a tougher economic cycle potential.
Sure. I'll take that one. They're pretty resistant to that kind of situation. Like whether it be pet food, whether it be cheese, et cetera, demand doesn't tend to change during a period of recession. We wouldn't expect an impact on the business from a volume perspective.
Thank you very much.
Our next question comes from Stephen MacLeod from BMO Capital Markets. Please go ahead. Your line is open.
Thank you. Good afternoon, everybody. Just had a couple questions, just on the packaging business. I was wondering if you could quantify sort of the margin impact difference between the resin price inflation and the production inefficiencies. Just how much of the year-over-year?
If you take only the resin impact, it's close to 1.5%, the impact in the quarter. Obviously affecting because of the price increase on the sell side, and as I said. There's a kind of a double impact.
Right. Okay. Still the majority of it would've been the production inefficiencies that you realized because of the 1.5%.
Yeah, the production inefficiency. Don't forget, there's not only the resin that is increasing right now, there's a lot of things that are increasing. Yes.
Right. Okay. Okay, that's helpful. Thank you. Just on, in terms of, you know, you obviously got a lot of price in the quarter, roughly, I guess of the 12% organic, it was kind of 11% price. I'm just curious, as you've seen, the resin price come off a little bit or sort of stabilize, would you expect to realize a certain similar level of pricing into fiscal Q2?
When you said that resin price is decreasing, I agree with that for some of the resin price, but what's the impact you're looking for for Q2?
I was just trying to gather what the pricing impact you would expect to see in Q2 relative to Q1. I was just saying that it was. It looked like it was about 11% pricing in Q1. I'm just curious how you see that evolving in Q2.
Yeah. What I would say to you is that if we look at the pricing, so we start to talk from a PE perspective, I think it's first important to recognize that last year was a year of massive PE increase. What we've seen in the beginning of this year is the beginning of a decrease from a PE perspective. It's important to understand that to ensure that our customers were well serviced, we built inventories over the last year to ensure that we're in a position when raw materials were scarce, to be in a position to supply.
That gave us some advantage and ensured we were in a good position to supply our customers. That said, the disadvantage of that was that we had some more expensive inventories and weren't able to take advantage of the decrease in raw materials of PE specifically in this quarter.
Going forward, we would see the advantage in future quarters, assuming pricing stays the way it is. It's also important to know that beyond PE, other raw materials also increased significantly in the latter part of last year, and their impact on us in the quarter was significant. The timing of pass-throughs was such that it was an impact on us in the quarter. Beyond that, I'd add it's important to appreciate that we're in a period of inflation in other items.
Whether that's inks, whether that's labor, whether it's other consumable products, whether it's electricity, we see all those things going up. They did have an impact on us in the quarter. I think what's important to appreciate about the quarter is that, you know, we had yet to see the benefit of PE going down.
I would say that we have work to do to ensure that we pass through other raw material increases on a timely basis. We have about 75% of our packaging business is contracted. The 25% that's non-contracted, we need to be acutely aware of increases and ensure that we pass them on on a timely basis.
Okay. That's a lot of great color, Peter. Thank you. Maybe just finally, you kind of alluded in the press release to a significant increase in the demand backlog. I'm just curious if there's a way you could sort of frame that for us in terms of you know, are you seeing that in specific end markets? Is there a way to sort of quantify what that might potentially mean in terms of volumes?
We see it in specific end markets in both print and packaging. You know, what we can say is that strength gives us great confidence that we'll continue to grow over the rest of the year. We had segments in which, to give you an idea, we went from backlogs of two weeks to 12. We're in a position where we know that we have the volumes available, and it's up to us to produce them on a timely basis.
Okay. That's great. Well, thank you very much, guys. Appreciate it.
Thank you.
Again, to ask a question, please press star followed by the one. Our next question comes from David McFadgen from Cormark Securities. Please go ahead. Your line is open.
Okay. Thank you. A couple of questions. First of all, assuming resin sort of stabilizes here, would you be done on the pass-throughs by the end of Q2, or do you see that lingering into Q3 and beyond?
Assuming there are no further increases, we'd be done our pass-throughs within Q2.
Okay. With the price of oil skyrocketing, do you imagine that resin will start to move up again?
When you look kind of split it in two. First look at PE, it doesn't really follow oil. It follows natural gas. We'll see how the Russian situation impacts that in terms of the cost. But currently, we haven't seen a significant impact. It's also important to consider that it's also a supply and demand situation. It depends on what happens from an economy perspective going forward.
Should we go into recession and other areas of the economy not demanding resin, then resin supply will go up and pricing will adjust accordingly. I don't wanna forecast what's gonna happen. That's the key element from a PE perspective. In terms of things like polyester, more attached to oil, and it has been going up significantly, over the past month. I would expect if things continue in the way they are, that could continue.
We're partway through Q2. Is the packaging business already back on track now with, you know, most of the Omicron absences are behind you? Is that a good way to think about it, that sort of back on track now?
The way I would look at it is first in terms of from a sales perspective, you know, I would say we're in a much better position to supply. Yeah, we're back at a point where we have the absences at a pre-Omicron level or a historic COVID level. In terms of that, yes. In terms of the other element, I'd say is in terms of getting inflationary costs passed through, I think that'll take us longer than reestablishing our sales pattern. I think from a cost perspective, it'll take us longer to get to where we expect our business should be.
I mean, you talked about backlog being up quite a bit. Would you expect 2022, the packaging revenue to be the same as before the Q1 experience? That you'll make up for it in the back half of the year? Or do you think that it's probably gonna be a bit lower than your expectations prior to this Q1 experience?
Well, I'd say at this point in the year, what we're confident in, and we're committed to is ensuring that our profit for the year is better than last year's. Our expectation is that sales will continue to grow the rest of the year- on- year.
Okay. All right. Okay. That's it for me. Thank you.
Thanks.
There are no further questions at this time.
Thank you everyone for joining us on the call today, and we look forward to speaking to you soon.
Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.