Mesdames et Messieurs, merci d'avoir patienté et bienvenue à la conférence téléphonique concernant les résultats du quatrième trimestre et de l'exercice 2022 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 treize décembre 2022. Welcome to the TC Transcontinental Fourth Quarter and Fiscal 2022 Results C onference Call. During this presentation, all participants will be in a listen-only mode. Afterwards, we will conduct the question and answer session, and instructions will be provided at that time. As a reminder, this conference is being recorded today, December 13th, 2022. I would like to turn the conference over to Yan Lapointe, Director, Investor Relations and Treasury.
J'aimerais maintenant céder la parole à Yan Lapointe, Directeur, Relations avec les Investisseurs et Trésorerie. Monsieur Lapointe, please go ahead.
Thank you, Sylvie. Good afternoon, everyone. Welcome to our fourth quarter and fiscal year 2022 earnings call. Before we begin, please note that the press release, the MD&A, along with complete financial statements and related notes, as well as the slides supporting management's remarks, are all 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. 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 this conference call is intended for the financial community. Media are in listen-only mode and should contact Nathalie St-Jean, Senior Advisor, Corporate Communications, for more information.
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 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 risks, uncertainties, and other factors that could influence actual results are described in the fiscal 2022 annual MD&A and in the annual information form. With that, I would now like to turn the call over to our President and CEO, Peter Brues.
Thanks, Yan. Good afternoon, thanks for joining our call. As usual, I'll start with safety. I'm proud to report that in fiscal 2022, our injury rate decreased by 21%. This is a major achievement by the team. Although significant work remains to achieve an injury-free workplace, this is a big step in the right direction. In terms of Q4 financial results, excluding the impact of the 53rd week and the Canada Emergency Wage Subsidy, we saw a solid increase in profit. I'm proud of the actions taken by the team to make our clients successful and improve our financial performance. Following a disappointing first quarter, our packaging sector took action and demonstrated improved profit in each quarter that has followed. Q4 was no different, achieving over 10% growth in adjusted EBITDA on a comparable basis.
The Q4 results were achieved despite a 1.8% decline in volume due to the continued weakness in our Latin American business. We have taken action to adjust our cost base structure there to reflect current volume. In our print sector, in-store marketing, book printing, and premedia activities continue their growth path with double-digit revenue increase. Excluding the additional week, the sector continued to grow organically. Despite organic growth, inflationary pressures had a negative impact on our volume, cost structure, and profit. Our media sector saw another quarter with a strong increase in both revenues and profits, mostly coming from our most recent acquisitions. In fiscal 2023, we will remain focused on improving profitability and cash flow from our operating activities. Our solid financial performance with no major debt maturity until 2025 gives us the flexibility to pursue our disciplined approach to growth.
Now, over to you, Donald.
Thank you, Peter. Moving to consolidated numbers on slide five of the earnings call presentation. Last year, we had an extra week in the quarter, which we need to take into account when comparing the results. For the fourth quarter of 2022, we reported revenues of CAD 802.2 million. When excluding the impact of the extra week, this is an increase of CAD 83 million or 11.5% versus the same period last year. This revenue growth was driven by the acquisition in our packaging and our media sectors, price increases following the passthrough of higher raw material inflationary costs to our customers, higher volume in our printing sector due to the continued growth in our in-store marketing, book printing, and premedia activities, and lastly, positive exchange rate variation from a stronger USD.
On the profitability front, consolidated adjusted EBITDA for the quarter was CAD 141.1 million. Including the Canadian Wage Subsidy of CAD 3.7 million and the extra week of last year's, on last year's results. This represents an adjusted EBITDA growth of about 10%. The increase was mainly due to our acquisitions. We also benefited from a CAD 2.7 million positive variation in exchange rates. Financial expenses decreased by CAD 1.4 million- CAD 10.5 million despite higher interest rates. As a reminder, we have no significant debt maturities before February 2025, thanks to proactive refinancing. The tax rate was 23.3%, leading to adjusted net earnings of CAD 0.79 per share for the quarter. Moving to slide 6 for the sector review. In packaging, we recorded revenue of CAD 433.5 million.
The increase of CAD 16 million versus last year was mainly due to the acquisitions of H.S. Crocker and Banaplast, the pass-through of higher raw material prices and other inflationary costs, and a positive impact from the exchange rates. This growth was partially offset by the effect of the 53rd week. In terms of profitability, adjusted EBITDA in packaging grew by CAD 3.8 million despite one fewer week in the quarter. Excluding last year's extra week, the positive contributions of CAD 1.7 million from our two acquisitions and CAD 1.6 million from exchange rates, adjusted EBITDA grew organically by over 10%. The growth is mainly due to the profit improvement from inflationary costs recovery. Moving to print on slide seven. Excluding last year's extra week, we recorded organic revenue growth of about CAD 20 million or 6%.
This growth benefited from another quarter of double-digit growth in our in-store marketing, book printing, and premedia activities. Printing's adjusted EBITDA was CAD 64.6 million for the quarter. The decline was essentially due to the impact of last year's additional week and the CAD 3.7 million in wage subsidies. While the team implemented proactive price increases, the inflationary pressures had an impact on our volume and affected our cost structure and profits. The sector adjusted EBITDA margin for the quarter was 19.8%, reflecting the lower earnings, also the dilutive effect of the pass-through of higher costs. In our Media sector, we recorded another solid quarter with revenues and profit growth following our two acquisitions in fiscal 2022. Corporate expenses were lower than last year, due mainly to non-recurring positive adjustments and lower stock-based compensation costs. Turning to cash flow.
We generated $103.5 million from operating activities, an increase of $10.8 million versus the same quarter last year, mainly due to improved working capital despite closing the year with higher level of inventory. Our investments in CapEx at $34.2 million are in line with last year. At the end of quarter, our net debt ratio was at 2.47x , a slight improvement from three months ago. Despite our growth CapEx and other investments, we continue to maintain a strong financial position. We distributed $19.5 million in dividends to our shareholders. Moving to the outlook. In Packaging, we expect volume growth and improved profitability in fiscal 2023. The economic environment remains uncertain and could affect demand in the short term.
In Print, we expect higher revenues in fiscal 2023 from growth in our ISM book printing activities and the transfer of higher costs. In terms of profitability, we expect lower adjusted EBITDA from the impact of inflation on volume and cost structure. We expect corporate costs at the EBITDA level to be around CAD 40 million for the year. In terms of capital allocation, we expect CapEx in fiscal year 2023 to remain in line with 2022 at around CAD 140 million as we continue our strategic investments before returning to a lower run rate in fiscal 2024. As for cash taxes, it should be around CAD 60 million. On that note, we will now proceed with the question period.
Merci. Mesdames et messieurs, nous allons maintenant procéder à la période de questions et réponses. Si vous avez une question, veuillez appuyer sur les touches étoiles suivie du un sur votre téléphone à clavier. Une tonalité se fera entendre confirmant votre demande. Les questions seront prises dans l'ordre qu'elles auront été acheminées. Veuillez également vous assurer de décrocher le récepteur de votre appareil téléphonique si vous utilisez la fonction main libre avant d'appuyer sur les touches. Un moment, s'il vous plaît, pour la première question. Ladies and gentlemen, we will now conduct a question-and-answer session. If you have a question, please press star followed by one on your touch-tone phone. You will then hear a tone acknowledging your request. Your questions will be polled 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, which will be from Hamir Patel at CIBC Capital Markets. Please go ahead.
Hi, good afternoon. Peter, I was wondering on the packaging side, are you starting to see signs of some of your customers destocking? Do you have a sense as to, you know, maybe how much higher their inventories are right now versus pre-COVID?
Hey, Hamir, thanks for the question. In terms of the packaging business, what I would say is that it's a funny time in that we're going through or going into a recession. Usually I'd be telling you in a recession, people stay home more, as a result, volumes go up. I think coming after COVID, I don't know that we can say that anymore. I think people just finished taking some time hanging out at home. I think what's happened with supply chain over the last couple of years, supply chain issues, we and they have built up inventories to protect ourselves.
As interest rates go up, there's more and more pressure on working capital, and both for us and them, there can be pressure to decrease those inventories. That said, haven't seen it of significance. We've seen some in specific segments, where we saw a decline in volume in the quarter year-on-year. But overall, from a North American perspective, we were fine. And looking forward, you know, while we have to be ready for a potential blip that could happen if there was a correction, we haven't... We don't see that happening yet.
Great. thanks, Peter. That's helpful. Just had another question on the printing side of the business. Just given some of the large price hikes that you need to pass through, are you starting to see signs from some of your print customers, about them, you know, reducing circulation or page count, and, you know, maybe if there's a way to quantify that potential volume hit that you might be expecting?
Sure. First what I'd say is that the print team has done a fantastic job over the last years. You know, making sure that our pricing reflects the volume that's being purchased and ensuring that inflationary increases are passed through. That said, you know, the result of that, while it's fully covered, the inflationary costs on our P&L, it does have an impact on volume. You know, we have customers when we're looking at the retail sector, we have customers that have fixed marketing budgets, and when, you know, pricing increases, they have to look at how to adjust, as you said, page count or volume. We've seen in the past quarter, pressure on volume.
Usually we see October as a strong month, we didn't see that historic strength repeating, affecting volumes in the business specifically. In newspaper, we saw people like Postmedia, for certain papers making the choice that they wouldn't print Monday editions. I mean, that's been the effect in a quarter. I think what is of importance is the actions that we have to take as a result or that we have to look at from as a result. What I can tell you is we're gonna take a really close look at volumes, and if we feel we need to adjust our cost base or our platform, we'll do so. I think of equal importance, you guys have heard me talk about following through on our last person standing strategy.
While I think strategies are really sexy and fun to talk about, the reality is it has to be about execution. When we talk about last person standing in terms of newspapers, what we said is, look, as costs increase and as volumes go down, you know, our partners in the newspaper industry are gonna be less efficient, in a less efficient place to continue printing their own newspapers. As a result, we have to partner with them and see if we can't help them improve their pro-profitability by moving the printing of newspapers in-house to us, and position them to free up some assets that may be captive on their side. Ton of work's been done.
you know, what I can tell you is, we're very close to finalizing a deal that would see us take over the volume of... from a major publisher. Yes, having an impact on volume. We'll continue to take actions to ensure we protect the volume we have, we find ways to grow our volume, and we adjust our cost base if we need to.
Okay, great. Thanks, Peter. Just following up on that, would, you know, if you do reach an agreement to bring some of that printing, in-house, would that be similar margins to the overall segment?
It would.
It would. Okay. All right. That's all I had. I'll turn it over. Thanks.
Next question will be from Adam Shine at National Bank Financial. Please go ahead.
Thanks a lot. Good afternoon. Peter, just following up on one of the last couple of questions just related to printing. I mean, this has always been a segment where you guys have historically done a good job of driving efficiencies and, you know, keeping margins or at least protecting overall EBITDA. You know, you've, you know, in answer to the last question, you alluded to the fact that, you know, you'll look at where the volumes are and make adjustments accordingly. Maybe you could talk a bit more proactively rather than necessarily reactively to anything out there in the marketplace, just on an efficiencies basis. Do we start to look at the prospect of printing margins, you know, dipping, you know, lower in the teens?
Is there this opportunity to, through efficiency efforts, preserve something, you know, a little bit closer to the F-22 levels?
Thanks for the question, Adam. From a percentage standpoint, you see percentages declining, and you'll appreciate that percentages change as inflationary costs get passed through.
Yeah.
Just the mathematics of it get done. In terms of, in terms of being able to preserve our cost structure, you know, we continue to have opportunities and to maintain the most efficient cost structure. I can tell you that we're doing a robust evaluation of our cost structure currently and marrying that to where we see volumes going. Based on that, if we need to, we can take action to ensure that our margins remain at a solid level.
Okay. No, thanks for that. Maybe one for Donel, just in regards to free cashflow. Obviously helpful in terms of, you know, some of the outlook elements, CapEx, and cash taxes that you provided. Obviously, you know, this has been a year of significant working capital usage. Can you speak at all around the working capital dynamic and, you know, maybe provide a bit more insight as to where free cashflow goes next year?
Yeah. Well, it's hard to make any forecasts on working cap because, you know, we were affecting in the last two years mostly because of two issues. First, the pricing.
Yeah.
Second, supply chain issues. The team did a very good job to make sure that we have the right inventory to respond the demand by our clients. Having said that, with what we see now, the supply chain issue seems to be less of an impact. Therefore, on that side, we will certainly see a decrease of inventories in the coming quarters, but this is what we see right now. Over the pricing, will depend where the pricing will goes. Right now it's a good direction, but it's very hard to make calls over the next fiscal year. You're totally right.
The reason why today we're at that leverage is obviously we did some four acquisition this year, but a large impact come from the impact of the working cap that we had to finance in fiscal 2022.
Okay, thanks for that.
Yep.
Next question is from Drew McReynolds at RBC Capital Markets. Please go ahead.
Yeah, thanks very much. 3 from me. Just following up on the printing volume, you alluded to obviously fixed marketing budgets, and your customers adjusting. Can you just unpack a little bit in terms of the inflationary kind of impact versus actual direct macro impacts or economic impacts that you're seeing today? Second question on other revenues, looks like the run rate is closer to CAD 100 million or CAD 110 million in annual revenues. Just wondering if you could just ballpark, help us ballpark that for modeling purposes. The last one just on free cash flow priorities, if you could just give us an update, given the macro environment looking into 2023, just what has changed, if anything, on your free cash flow priorities. Thank you.
I can take the regarding your question, Drew, for for the volume and for media. It's I think what we have said when we did the acquisition, especially the FP acquisition, is that there's seasonality in those numbers. Therefore, Q3 and Q4 are the peak as it is for our media business that we had before. You made the right assumption when with the numbers, because if you look at the other this year, we were slightly above 100, and obviously you will have the impact of the full year of the acquisition. As I said, the first six months. The last six months don't represent the first six months of the business.
You need to evaluate that when you modelize for media business. Can you, for the third question, can you wanna take the first one?
I'll do the first one.
Yeah.
I'll do the. In terms of first question, the, in terms of the flyer, you know, what I'd say to you is that, you know, what we've seen historically in an inflationary period, that, you know, what we know is a family can save CAD 1,500 a year, using the flyer. What we've seen historically is customers use flyers as a means to help the consumer and attract them to their stores. It remains something of value. When we see what they're doing, we continue to see strong volume in terms of that. That said, you know, we usually have a stronger month in October, and we didn't see that. You know, from that, we're not, you know, we're not at a point here where we can extrapolate what that means.
It was a month. We're gonna have to watch it closely so there's not some macro macro effect. We do recognize that as pricing goes up or as the cost of our service goes up, that can put pressure on volumes. You know, it's not something at this point. It's something we forecast is having an impact on the business in the long term, and we need to be ready, and adjust our cost structure if that's what's required.
Drew, maybe for me, just can you just repeat the third question for the cash flow?
Sure. Just on access for cash flow priorities, dividends, debt repayment, kind of further M&A. Just wondering how that has evolved just given the macro environment seems to be changing month to month here.
Well, yeah, for cash flow, obviously we're at 2.50 right now. Usually the position would like to be following acquisition is near two or below two, and this is what our target is. Obviously, if there's acquisition, and Peter can comment a little bit more on the M&A side, you know, this is part of the strategy of the growth. Right now, 2.47, it's really to pay debt, especially in the short term current environment, pay down debt will be the first priority.
The only thing I'd add is, look, we're pretty proud that we closed four acquisitions in the last year. You're talking about CAD 125 million of cost to that. As we talked earlier in the call, you know, we spent over the last two years, probably CAD 200 million on working capital, growing. In this environment, we'll be prudent, and at the same time, we're committed to continue to grow the business. I'm much more comfortable growing the business when the net debt-to-EBITDA ratio is closer to two than it is right now. Right now, it's about 2.47. I'd rather see it closer to two.
Okay. Super understood. Thank you very much.
Thank you.
Next question is from Stephen MacLeod at BMO Capital Markets. Please go ahead.
Thank you. Good afternoon, guys. My question is around the packaging business. I'm just wondering, coming off of the Q4 where you saw a bit of a dip in volumes, and as you talk about the near-term uncertainties, can you just give a little bit of color as to where your initial volume and pricing expectations are for 2023?
In terms of 2023, in terms of packaging, you know, we looked at a business that in the first quarter was a disappointment. Then we saw Q2 was a small improvement year-on-year, and then Q3 a strong improvement, Q4 a strong improvement. That's baked by actions that the team has taken both in terms of growing volume, and we saw 2% pure volume growth year-on-year, which I think in the economic environment is, and the uncertainty we have, and then COVID environment we had at the beginning of the year, or Omicron environment, is an extremely solid performance that we can be really proud of.
You know, while I'm not gonna spend a ton of time forecasting into next year, because of the environment, because the uncertainty around the environment and what I talked about in terms of the potential for inventory adjustments, et cetera, you know, what I'd say is, we've had weakness in LatAm for a couple of quarters. The war in Ukraine continues to persist and therefore, we're taking costs out. For me, what's important to say is that business remains a really strong business. I think taking costs out, if anything, positions it to be stronger coming out of that.
In terms of the rest of our businesses, you know, we've put a bunch of time and effort, whether it be in R&D, whether it be in capacity, whether it be in working with sales teams, to understand where we create value for customers. As a result, we have confidence that we're gonna continue to create value for shareholders next year. At this time to start estimating what the year's gonna look like from a growth perspective, et cetera, I think it wouldn't be prudent to do. What I am confident in saying is the team's done the work, and I expect us to continue to improve. We understand that our credibility is built on surpassing last year quarter after quarter.
We've done it three quarters in succession, and our target has to be to do the same thing in Q1 next year.
Okay. That's, that's fair. Thank you. Thank you, Peter. Appreciate it. Donald, do you give a little bit of color around the other segment, media segment in terms of revenues? Always a tough segment to model. Just curious if, you know, if you can give a little bit of color around maybe how to think about how EBITDA stacks up for next year, just given the fact that Q4 was so strong?
Well, I think a good way to modelize is look what was our business on the educational side in media before the acquisition. I will say, you know, the acquisition is a good what we had before. The acquisition is almost aligned with what we had before because it's totally aligned with our current business. The media number before the acquisition was, I would say, like a very high percentage education. The best benchmark you can use is look at last year and just do the same for your model to represent the acquisition. As I said in previous question, for sure, Q3 and Q4 represent the biggest part of the business for both our current business and the acquisition we did during the year to year.
Okay. That's, that's helpful. Thank you very much. Thanks, guys.
Thank you.
Thank you. Your next question is from Mark Neville at Scotiabank. Please go ahead.
Good afternoon, guys. I guess just curious if you're seeing any relief or decline in resin costs. I guess if, how you're feeling with your inventory and packaging, if there's maybe a risk potentially to short term to margin, as those prices come down and you have inventory. Thanks.
Thanks for the question. You know, resin, so PE resin specifically has been and has seen some decline. You know, we've been aware. You'd see the industry has about 10% capacity that's coming on stream in the near term, which, you know, has obviously an impact on pricing. Yes, we've seen a decline in pricing. I can tell you that the suppliers are attempting to stem the decrease in calendar Q1 by announcing an increase. We'll see if that can stick given capacity coming on.
That said, you know, we're aware of what was going on and, you know, the teams understood the importance of balancing security of supply, with getting our inventories to a level where, we can benefit, from, reduced pricing of raw materials.
We'll move to the next question.
Next question will be from David McFadgen at Cormark Securities.
Oh, yes. Hi. A couple of questions. Just on the printing business, you talked about the revenue you expected to be up in fiscal 2023, you also said that you expect EBITDA to be down. I was wondering if you can give us a little more detail or a better outlook on the printing EBITDA. Do you think it would be down mid-single digits? I was just wondering if you could just help us with how much you think it might be down.
I think the issue right now is it's difficult to judge. You know, what we're trying to do is in a time that's uncertain to give the best indication we can for the year ahead. You know, what I can tell you is the amount of work we've done in the last year to maintain volumes has been significant. We continue to do that. That said, you know, to repeat what I said earlier in terms of, you know, there has been inflation, there continues to be inflation of costs. It's paramount that we pass those through. We understand that that has an impact on volume, and volume obviously has an impact on our bottom line.
At this time to predict how inflation is gonna continue for a year and how that's gonna impact volume, I think isn't something that I'd wanna do today. As the year progresses, we can give a better view. From our perspective today is we'll do everything we can to hold volume. Given the current circumstances, there's a risk that it'll have an adverse effect on profitability. To say what that impact will be at this point, I think it's too soon, and it's too uncertain to be starting to guess at that.
Okay. A question on working capital. You discussed earlier in the call, the last two years, you invested over CAD 200 million in working capital. You know, one of the attributes that a lot of investors like about TransDigm has been strong free cash flow. If you keep investing this level of working capital, it really erodes the free cash flow. Do you think that you could have flat working capital this year or actually maybe free up some working capital and get some of that back? Is that realistic to even think about that?
I think it's a great question. I mean, investing in working capital is a bit of a misnomer, isn't it? I mean, the reality has been that raw materials have risen massively, and as raw material pricing goes up, unfortunately, the net of working capital is to the negative from a cash flow perspective. You couple with that, where some raw materials, really specific raw materials, and today foil specifically, continue to be difficult to acquire, and as a result, it's important to keep a certain level of inventory. That said, if we're looking at the coming year and we look at the direction that resin is going, for example, as resin goes down, our inventories will go down from a pure price perspective, and you'll see a recovery of working capital.
While I don't wanna predict, 'cause no one's been successful in life predicting the direction, on a full year basis of raw materials, what I would suggest to you is, as raw materials go down, you'll also see our working capital go down. As supply chains free up, you'll see our working capital go down, and we understand the importance of doing that. As we see PE specifically, polyethylene specifically going down, we have, we are focused on making sure that our inventories go down so that we can benefit from a decline in raw materials as opposed to, be hurt if we have high cost, raw material inventories on hand and pricing reflects lower costs or lower pricing.
In conclusion to your question, long answer is, we will do everything we can to see working capital go in a different direction this year.
Okay. All right. Thank you.
Ladies and gentlemen, if there are any additional questions at this time, please press star followed by one. As a reminder, if you are using a speakerphone, please lift the handset before pressing any keys. 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.