Q1 2024 Transcontinental Inc Earnings Call
Operator: Mesdames et Messieurs, merci d'avoir patienté et bienvenue à la conférence téléphonique concernant les résultats du premier trimestre de l'exercice 2024 de TC Transcontinental. Pendant la conférence, tous les participants seront en mode d'écoute seulement. A period of questions will follow the presentation, and directives will be given at that moment. We would like to remind you that this conference is recorded today, 13 March 2024. Welcome to the TC Transcontinental First Quarter of Fiscal Year 2024 Results Conference Call. During the presentation, all participants will be in listen-only mode.
But that may Miss your mouth to that of our past I'll tell you. If you have an ear that coffeyville telephonic call. So that there isn't a premier he missed their legs off says they think cat D C cost cuts not tap.
Although that called for it all to laptop.
I'm not quite certain that.
Yeah, the cursed child, she forgot that preserve paas gel it did sort of cheap booster that now some of them are new disease. All the Pico second half at all if that was just cleared up high enough they think cap.
Welcome to the TC transcontinental first quarter of fiscal year 2024 results conference call.
During the presentation, all participants will be in 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 13 2024.
Operator: Afterward, 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, March 13, 2024. I would now like to turn the conference over to Yan Lapointe, Director of Investor Relations and Treasury. J'aimerais maintenant prêter la parole à Yan Lapointe, Director of Relations avec les Investisseurs et Trésors.
I would now like to turn the conference over to you on that point director Investor Relations and Treasury Gemini now so they're not part of a lot of young and appoints a hectare my last job Vicki has ever saw it fits the E. Ms. Sheila point. Please go ahead.
Yan Lapointe: Vérité Monsieur Lapointe, please go ahead. Thank you, Zohaib, 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, is 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 Amare, and our Executive Vice President and Chief Financial Officer, Donald LeCavalier.
Thank you Joanna and good morning, everyone.
Welcome to cough cold snap ads first quarter of 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 managements remarks are available on our website at www.
P C P C 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 without any change in your advisor corporate communications for more information.
We have with US today are president and Chief Executive Officer, Tom Armani, and our executive Vice President and Chief Financial Officer do not look at it.
Yan Lapointe: As referenced on slide two, some of the financial measures discussed over the course of this conference call are non-IFRS; please refer to DMDNA 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, Tom Momave. Thank you, Yan, and good morning to all.
As referenced on slide two some of the financial measures discussed over the course of this conference calls Arnold I FRS.
Can refer to the MD&A for a complete definition and reconciliation of these measures to ifr.
In addition, this conference called might also contain forward looking statements.
<unk> are based on the current expectations of management and information available as of today and involves numerous risks and uncertainties known and unknown.
The risks uncertainties and other factors that could influence actual results are described into 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 Tom Amato.
Thank you Ian and good morning tool as you may have seen we were holding our annual meetings of shareholders. Both just later this morning, and I Hope you can join us.
Tom Amare: As you may have seen, we're holding our annual meetings of shareholders podcasts later this morning, and I hope you can join us. As you know, we had a solid first quarter, mostly due to cost reduction initiatives, as well as early gains from our program to improve profitability and our financial position, which we announced last month. 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% adjusted EBIT. Despite the decline in volume from soft markets. Second, delivering a strong return on assets and, in line with our December program, to which I will come back later, we announced the closing of our Saint-Hyacinthe printing plant in April with the end of. Third, reducing our debt with a strong free cash flow and bringing our net debt ratio to exactly two times at the end of Q1.
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% and adjusted EBITDA. Despite the declining volumes 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 son, yes on printing plants in a pool with the end of <unk>.
And third reducing our debt with our strong free cash flow and brought our net debt ratio to exactly two times at the end of Q1 and.
Tom Amare: And fourth, pursuing a sustainability agenda, we're progressing well with Radar and with the installation of a 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 market, was more than offset by our cost improvement measures, a more favorable product, and a recovery in Latin America's operations performance.
And fourth pursuing on sustainability agenda, we are progressing well with radar.
With the installation of our <unk> line of cutting edge modem material recyclable packaging solution under first in North America, which is expected to start production in Spartanburg. This summer.
Now turning to our sectors packaging is off to a nixon and start the soft demand environment affecting us, particularly in the industrial and medical markets was more than offset by cost improvement measures a more favorable product mix and the recovery knowledge in American's operations performance.
Tom Amare: 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 people with the deployment of new equipment linked to a strategic investment. We're encouraged by the market's interest in our sustainable solutions. Now, in the printing sector, our cost-cutting initiatives have enabled us to offset the continuing difficulties in our book printing business, where we've been demonstrating our business development, and we will continue to manage costs diligently.
While uncertainties remain regarding short term demand, we are supporting the needs of our customers to accelerate the commercialization of recyclable packaging and the drive to create a more circular economy for plastics.
With deployment with the deployment of our new equipment linked to our strategic investments. We're encouraged by the market's interest in our sustainable solutions.
No not printing sectors, our cost cutting initiatives have enabled us to offset the continuing difficulties in the printing business, where we are anticipating a business to supplement that.
And we will continue to manage costs diligently.
Donald LeCavalier: 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 Quebec. 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 Tomas, Wisconsin, and Saint-Yacinthe, Quebec and the other staff reductions across the organization, we will have reduced our overall workforce by. We have also achieved significant savings across..., and on the real estate front, since the sale of a building in Quebec, we have long-staffed processors for four. Now, some of these decisions, combined with the end of Kublissak, have had a regrettable impact on employment for affected employees and their families. I sincerely thank them for their dedication and accomplishment. Now, it's over to you, Donald.
In our retail services, we're encouraged by opportunities change, including the continued rollout of radar.
Coffee is now distributed each reaching Quebec up to $3 7 million copies at the beginning of May as well as in our <unk> activities, all doing well in Q1.
Finally, as said earlier, we are pleased with the early results of our three year program to improve our earnings per share.
<unk> position.
By the end of the second quarter with the closure of Tomo, Wisconsin, and it's not just in Quebec, and the other staff reductions across the organization across the organization.
We'll have reduced our overall workforce by 6%.
We have also achieved significant reduction in that customer was sold and on the real estate front since the sale of a building in Quebec City, we have long sales processes for for their buildings.
Now some of these decisions combined with the end of <unk> at a regrettable impact on employment for ASIC to employees and their families.
Serious thing them for their dedication and accomplishment.
Now over to you Donald Thank you Tamara and good morning, everyone.
Donald LeCavalier: Thank you, Thomas, and good morning, everyone. Moving on to consolidated numbers on slide 5 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 make- 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 Adjusted income tax increased by $3.7 million due to higher earnings and effective tax rates, resulting in adjusted net earnings of $0.43 per share for the quarter compared to $0.24 for the same quarter last year.
Moving to consolidated numbers on slide five of the earnings call presentation for the first quarter of 2024, we reported a three 8% decrease in revenues versus the same period last year.
This decline was caused by lower volume, mainly in our printing sector, where the line with the 2024 outlook we disclosed in December.
Regarding profitability, we delivered a strong quarter with consolidated adjusted EBITDA of $96 $1 million or 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 generation in the last 12 months, partially offset by higher interest rates.
Adjusted income tax increased by $3 $7 million due.
Due to higher earnings and effective tax rate <unk>.
Resulting in adjusted net earnings of 43 cents per share for the quarter compared to <unk> 24 for the same quarter last year.
Donald LeCavalier: Now moving to slide six for the sector review. In packaging, we generated revenues of $405.7 million, down 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 upset by a stronger U.S. dollar.
Now moving to slide six for the sector review.
In packaging, we generated revenues of 405 million $5 $7 million down to 111, 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.
Donald LeCavalier: 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.
In terms of profitability, despite lower volume adjusted EBITDA and 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 of 370 basis point improvement versus last year.
Moving to printing on slide seven.
Revenues decreased by seven 4% to $265 1 million. This was mainly due to lower volume in our magazine and printing activities.
Donald LeCavalier: This was mainly due to lower volume in our magazine and book printing activity. Printing adjusted 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 initiative. Corporate Expansion was negatively impacted by $1.8 million higher share-based compensation expense in Q1 following the stock performance.
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 $4 million as lower volume was offset by our cost reduction initiatives.
Corporate expense were negatively impacted by.
8 million higher share based compensation expense in Q1, following the stock performance.
Donald LeCavalier: 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.
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.
Donald LeCavalier: The $45.4 million increase was mainly driven by improved working capital. Our capex, at $36.6 million, was $14.6 million lower than last year and was in line with our full year guidance of around $135 million. The strong Q1 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 efficiency improvements 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.
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 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 time at the end of fiscal 2023.
It is important to note that our ratio was at $2 63 times, one year ago and that we would reduce 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 deliver at $12 million EBITDA growth in the first quarter.
The comparable will be significantly tougher in the second quarter.
Operator: On that note, we will now proceed with the question period. Thank you, ladies and gentlemen. We will now proceed to the Q&A period. Si vous avez une question, veuillez appuyer sur la touche étoile suivie de 1 on votre téléphone avec serrure. A tone will be sounded conforme à votre demand. Les questions seront prises pendant qu'elles auront été acheminées.
On that note. We will now proceed with the question period.
Next year is that they end up at the end of <unk>, you only have that pump so.
Has that been cursed Java <unk> TV.
So with that caveat.
In 2019.
Councilmember tantamount Mckesson will somehow piece.
Zafar AP.
I assume you mean.
Yeah again ma'am.
The question I guess.
Pam.
Operator: Please also make sure to turn off your call receiver. 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 number on your touch-tone 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 key.
Hey, <unk>.
Joe <unk> and then the piece.
<unk> had a muscle.
Yeah. 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.
<unk> will be pulled in the order they are received.
Sir you lift the handset if youre using a speakerphone before pressing any Keith one moment. Please for your first question.
Adam Shine: One moment, please, for your first question. We now have a question from Adam Shine with National Bank Financial. Thanks a lot. Good morning.
Is that a man named Joe Yeah, Adam Shine of National Bank Financial Your first question comes from Adam Shine with National Bank Financial. Please go ahead.
Tom Amare: 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.
Thanks, a lot good morning, I guess your efficiencies extent to this call.
In terms of book printing come out. He can you talk about the issues I know, we saw a bit of those issues creep began last year, but just curious if they're the same or different in nature.
Tom Amare: Yeah, thank you, Adam. Indeed, the demand, and we would have reported on that, I think, two quarters last year, two, three, four years. Q1 was no different in terms of overall book demand.
Yes, Thank you Adam indeed, the demand.
We would have reported on divesting two quarters last year to three categories.
Q1 was no different in terms of overall demand the reason or remain the same in Europe.
Tom Amare: The reason remained the same, and the ease of the supply chain opened up again, imports from Asia, which was the case before the pandemic. But 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 pretty thorough business development activities in terms of volume gains across North America. Our share of wallets in books is not great, I mean, we're about 20-30%, and we have room for growth.
The ease of the supply chain of the up and up again in <unk>.
<unk> four from Asia, which was the case before before the funding.
These two things have changed though since since last quarter first we significantly improved our operational performance.
In the book and notebook segments. So there was a lot of support from.
From the network to help reduce waste and improve efficiencies point number one.
The second thing we've launched we mentioned that we've launched a pretty thorough.
Development activities in terms of volume gains across North America, our share of wallet and books is not great. I mean, we are about to 20%, 30% and we have room for growth.
Tom Amare: So basically, we now engage in growing the top line with thorough business development and prospection activities across. 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. Radar. Radar for North America, in general, or not?
So basically we now engaged in growing the top line with.
A thorough business development and prospects in activities across North America.
Hello, everyone.
Sorry go ahead.
Please go ahead Sir.
Sorry about that.
Could you shift over to radar you talked about volumes, but obviously last year was a year, where you launched the product and start.
Sorry to expand some of the distribution opportunities maybe elaborate a little bit further on that.
A great read out forward for north.
North America in general or radar radar regarding <unk>.
Tom Amare: No, radar, you know, evolving distribution across Canada. So two things to say, or three things to say on radar. First, the rollout in Quebec went very well. The acceptance and reception of the product are strong from our customers and the consumers. And as we mentioned, 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 are aiming at more as well. Now the third is on Ontario.
Evolving distribution across Canada.
So two things two things to say or three things to sell and with our first.
The rollout in Quebec goes goes very well.
The acceptance welcoming of the product is strong.
From our customers and the consumers and as we could mentioned, we will reach $3 7 million copies by by sometime this spring.
As early as possible.
In the meantime, we are investigating other opportunities outside of Quebec.
Making good progress.
British Columbia, where we already distribute 400000 copies and aiming.
Tomorrow as we speak.
Now the third is on I'll tell you we've launched we've launched we positioned.
Tom Amare: We've launched, and we positioned Radar in the context of the distribution concerns we had back in September, as you all remember. Meanwhile, distribution of standard flyers has stabilized in Ontario, and we actually started the rollout of Radar there, acknowledging that customers are comfortable with the current state of the system. 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 out elsewhere in case of any need from our frontiers. 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.
Radar.
In the context of the distribution concerns we had back in September as Youll remember Meanwhile, distribution a stabilized standards fliers has stabilized in Ontario, and we actually post the rollout of radar there acknowledging that the customers are comfortable with the current state of disk.
Attribution to the productive steel obviously.
Available and will be 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 are ready to roll it out elsewhere in case of any need from our from our customers. Okay.
Okay. Thanks for that to my one last question you referenced the fact that you are pleased with some of the deployment of the new equipment to be op light is that is that largely completed the deployment such that we don't necessarily see any usual equipment.
Tom Amare: 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 is indeed happening? Is that largely done, and as you said, you begin production in the summer, or is there more to be done there? So we have a net packaging specific now. So, in 2023 and at the 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 gonna be powered sometime this month.
Positioning dislocations that tend to occur in certain periods of the year with that indeed is happening is that largely done and as you said you begin production in the summer or.
Or more to be done there.
So we had a net packaging specific now so.
In 2023, and beginning of 2024, we are physically three large strategic investments happening in.
With America. One is the one you mentioned, which is the <unk> line in Spartanburg, which is which is going to be powered sometimes this month and we will start to debugging and producing <unk> spring early summer and Thats why we believe and we contribute into the capability we have to commercialize the product in the second part of the year.
Tom Amare: And we will start debugging and producing test reels in spring and early summer. And that's why we believe in and are confident in the capability we have to commercialize the product. In the second part of the investment, 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 nearly complete. Clinton is operational this month, and we already see some nice bulls. And Tulsa is about 60% done, and there are also some nice commercial pools as well there.
Two other investments.
Almost complete is not fully complete one.
<unk>, Missouri.
Dedicated to dairy and another one in Tulsa, Oklahoma four for the mid segments. Those two those two large investments were talking in the region of $30 million. Each are vastly complete Clinton is operational this month and we already see some some nice some nice pool until say is about 60% done.
And also some nice some nice commercial tools as well there so green going the right direction very much in line with what we said in the last.
Adam Shine: 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. Great. Thanks for that.
In the last years very much in line with our segment focus.
Alright, thanks for that I appreciate it that's it for me.
Sure.
Operator: I appreciate it. Thank you. Your next question comes from Amir Patel with CIBC Capital Markets. Please go ahead.
That's a question I guess Joe.
Mr. Andrea <unk> of CIBC.
Your next question comes from Amir <unk> with CIBC capital markets. Please go ahead.
Hamir Patel: 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? I was expecting this question.
Hi, good morning.
Thomas just starting on the printing side, given the salt wire creditor protection filing.
Atlantic Canada. This week, what type of impact would you expect for Tcs.
I was expecting this question and thank you for asking it well listen this is fresh news from two days ago that being said, it's it's something we had anticipated somewhat.
Tom Amare: 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 salt wire activities.
We're not very much exposed to the salt wire activities, we directly connected with our customers out east.
Tom Amare: We directly connected with our customers out east. We connected, obviously, with them, and so far, business is as usual. Out of the $1.1 million, $660,000 was delivered by Canada Post already.
We connected obviously with them so far the business as usual.
Out of the.
$1 1 million or 660000 doors that delivered by by Canada Post already so we don't expect to be very clear we don't expect.
Hamir Patel: So we don't expect, to be very clear, we don't expect a significant disruption. Actually, on the contrary, we are investigating opportunities out east. So, so far, very close monitoring, no impact on us financially, nor on our balance sheet, and commercially, something that we... Okay, great. Thanks. That's helpful.
Michigan disruption actually on the country, we investigate opportunities out east. So so far very close monitoring no impact to us financially nor on our balance sheet and commercial is something that we believe we are positioned to manage.
Okay, great. Thanks, that's helpful and just on the packaging side.
Operator: And just on the packaging side, can you comment on what you're seeing on the cost side for resins and how you position yourself there from an inventory standpoint? So I know that's a question that has been asked across the industry, so resins have slightly decreased from last year, so there is some 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. Invariary positions are back to where they should be, so we're down to less than a month of invariaries, which explains the working cap improvement Donald mentioned earlier. So, I guess this is the answer to your question. Great Thanks. I'll turn it over to you. Your next question is from Monsieur Mayor Jaggi with Scotiabank.
Can you comment on what Youre seeing on the cost side for resins and how are you.
<unk> there from an inventory standpoint.
So.
I don't know if Thats a question that has been that has been asked across the industry. So resins are slightly decreased from last year due to some of this impact not a massive impact on our on our P&L.
We don't expect to see.
This.
Further weakening predictions.
Predictions, we see on resin are pretty much stable for the rest of the year I am very repositions are back to where they should be so we're down to less than a month of in batteries, which is explain unexplained dia to working cap improvement Donald mentioned mentioned earlier.
So I guess this is the answer to your question.
Great.
Thanks, That's all I had I'll turn it over.
Yes.
That's my question.
Monsieur Mayer Yaghi FX Scotiabank. Your next question comes from mere Yaghi from Scotiabank. Please go ahead.
Operator: Your next question comes from Mayor Jaggi from Scotiabank. Please go ahead. Merci d'avoir posé mes questions.
You'll see the up tick in steel.
Tom Amare: Good morning. I wanted to ask you about the cost, you know, initiative, cost reduction initiatives that you started a couple of months ago. We saw a significant improvement in earnings. Can you, you know, help us understand the incremental, 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? And I'll have a follow-up question on that later. Yeah, thank you for the question, and I'm great to talk to you again.
I wanted to ask you about the car.
Initiatives cost reduction initiatives that you have.
<unk> started a couple of months ago.
Significant.
Improvement on earnings can you help us understand incremental 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 and I'll have a follow up question on that factor.
Yes.
Yes. Thank you for the question and great to talk to you again.
Tom Amare: We announced this improvement plan back in December, and the target has been $20 to $40 million over the next three years of recurring profits. We had a pretty solid start to the year in Q1, driven by the different components, some of which have been addressed on the performing side, and others addressing fixed costs and structure costs, which have 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. An early start. I mean, good progress. The team has been excellent.
We've announced this.
Improvement plan back in December and to target has been $20 million to $40 million over the next three years of recurring recurring profit improvements.
A pretty solid start of the year and that in Q1, driven by the different components some of which.
Addressing underperforming sites.
Addressing our fixed costs.
Structural costs, which has progressed well. We've also started some good work in terms of our cost of goods sold.
Including waste improvements in efficiencies. So we're in line with our with our plan she will.
An early start I mean, good progress the team has been has been excellent and deliver good results.
Tom Amare: Good results. So in line with what we've announced for the full two-year period, which is. Okay, great. So the plan has remained on track, and those numbers remain achievable. In terms of packaging on the volume side, you're not alone seeing these pressures on the volume side in packaging.
Also in Q1, so in line with what we've announced for the full two year period, which is $20 million to $40 million.
Okay, great. So the plan is remains on track and those numbers remain.
Achievable.
In terms of the packaging on the volume side, you know you're not alone in seeing these pressures from on the.
The volume side on in packaging, but what can you say about your your view going forward.
Tom Amare: What can you say about your view going forward, specifically about some of the industries that have affected you? In general, if you could comment on your expectations for volumes in 2024, how would you characterize the environment? Yeah, thank you for the question. That's obviously the focus as we make some good progress on our class positions. We monitor our top line, like, extremely closely. A lot of things to say, if you will, but to make it short, 80% of what we do is food-related.
Specifically to some of the industries that have affected you and in general if you wanted to if you can comment maybe on your expectations for volumes in 2024, what how would you characterize the environment right now.
Yes. Thank you for your question.
The focus as we as we made some good progress on our on their cost positions, obviously, we monitor our topline extremely close.
A lot of things to say, if you will but to make it to make it short 80% of what we do is food related.
Tom Amare: And on the food, I'm talking packaging here, on the food-related activities, there is no more de-stocking, in my view, and I think I mentioned that in our Q4 results. What we see, depending on the segment, is lower demand, but not massive, related to inflation. On this very part, we see some signs of improvement, driven by retail services starting to promote themselves more at the beginning of the year, which is encouraging to move forward, yet it's a bit too early to... Now on the non-food activities, which are industrial and medical, industrial has been low for the last 12 months. It's a bit the same discussion as on the non-food activities.
No no I'm talking packaging here on our food related activities. There is no more destocking in my view and I think I mentioned that in our Q4 results, what we see and depending on the segments is a lower demand, but not massive.
Related transmission program.
These 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, yes, it's a bit too early to confirm.
Now on the non food activities, which is industrial and medical industrial has been low.
Over the last 12 months.
It's a bit descent and discussion is on the books.
Tom Amare: It's been low because of the high interest rates in North America, which has slowed down the construction. This remains to be. On the third door, on medical, medical is where there is still some high level of invariance, and we don't expect this to turn before the second half of the calendar. That's our best estimate. Thank you.
It's been low because of the high interest rates in North America, which has slowed down the construction activities. So this remains the same.
On the third dose medical medical is where there is just some high level of inventories.
And we don't expect these to turn before the second half of the calendar year, that's our best estimate.
At this point in time.
Thank you. Thank you for this and maybe one last question on leverage.
Donald LeCavalier: And maybe one last question on leverage. You're continuing to reduce leverage. Can you remind us what your objectives are, at which point you might decide to reallocate some of the cash flows away from just reducing straight up debt and reallocated differently in terms of excess cash flow? We don't have any specific objective or target to be We're definitely more comfortable being below two, so we're quite happy to be there at this moment. But we don't have a specific objective.
You are 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 that and reallocate it.
Differently in terms of.
Excess cash flow. Thank you.
We don't have any specific objective of target to be.
We're definitely more comfortable to be below two so we're quite happy to be there at this moment.
Donald LeCavalier: I remind you that when we bought Co-Risk at the time, we had almost no debt on the balance sheet, and we were quite happy to be there in that position at the time. So, it's not because we will be closer to 150 by year-end, I will say it's the time, but it definitely put us in a position to be back in action regarding Imeni. But we don't have any specific objectives, but as I said in my opening remarks, I'm pretty glad to be at 2 this morning compared to 262 last year. Great Thank you very much. Votre prochaine question vient de M. Drew McReynolds with RBC.
But we don't have a specific objective I remind you that when we bought KOL risks at the time, we have almost no debt on the balance sheet that we were quite happy to be in that position at the time. So it's not because we will be closer to one <unk> by year end I will say, it's the time, but it's definitely put us in a position to be fact of action <unk>.
Adding him any but we don't have any specific objective, but as I said in my opening remarks pretty glad to be at to this morning being compared to $2 62 last year.
Great. Thank you very much.
That's a question on <unk>.
You drew Mcreynolds RBC. Your next question comes from drew Mcreynolds with RBC. Please go ahead.
Operator: Your next question comes from Drew McReynolds with RBC. Please go ahead. Yeah, thanks very much. Good morning.
Yes, thanks very much good morning, just a couple of follow ups first.
Drew McReynolds: Just a couple of follow-ups. First, on the I think Thomas in 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? I agree with Donald on timing; as Thomas mentioned, we have four buildings in the market right now, so we're positive that we should have action this fiscal year. Having said that, we don't put pressure on ourselves, we want to get the best price, so we won't push to close them this year, but I would say that we're cautiously optimistic about having some of them close this year. Okay, great. And just back to book printing. Are you at a point where you're just simply lapping tougher comps?
On the 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 realize more than non core real estate sales.
Yes.
Donald talking regarding timing some of as mentioned we have four buildings in the market right and also we're positive that we should have action and 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 for to close it this year, but I will say that.
We are cautiously optimistic.
Some of them closed this year.
Okay, Great and just back to book printing.
Are you at a point, where you just simply lapping tougher comps or is there incremental pressure here kind of sequentially.
Donald LeCavalier: Or is there incremental pressure here kind of sequentially as you as you go through kind of this fiscal year? 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 issue 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, but the further we'll go in fiscal 24, the comparable will be not as tough as this Q1, for sure, on the book side. Yeah, yeah, understood. Okay, that's great. And then last one for me.
Go through kind of this fiscal year.
If I get to your question Q1 last year was good on the book side, and we started to feel a C twitching opening last year.
At the beginning of fiscal last year is that first I'll say the post call then effect, where demand went down a bit and then as Thomas mentioned, the Asian market reopens. So those two up and at the same time and we have some issue also internally on the operation side that we're fixing it actually one of the reason that the impact on the bottom line is not.
It's not a heavy in this quarter is that we took action on that side and stomach mentioned, we're taking action on the sales side, but the further we will go into fiscal 'twenty for the comparable will be not as stuff is this Q1 for sure on the bauxite.
Yes, yes understood. Okay, that's great and then last one for me.
Donald LeCavalier: Just on the printing margin side, you know, clearly you guys hold the line on that. In terms of just the impact of the plant closure as we look forward, is there any kind of material you want to flag on that, or is that just all part of sustaining printing margins going forward? Well, yeah, as you know, Drew, it's been an objective to always try to maintain the higher team's 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 in fiscal 2024, we should be better. You know, the efficiency of Sentai will kick in probably more in the second half.
Just on the printing margins side.
Clearly youre seeing.
Hold the line on that.
In terms of just the impact of the plant closure as we look forward is there anything kind of materially you wanted to flag on that or just all part of sustaining printing margins going forward.
Yes.
As you know drew as being an objective to always try to maintain the higher teens margin on the printing side and free cash flow.
We don't have the effect of the closing in the first quarter and we finished at $14 nine compared to $14. Two so we're confident that over fiscal 2024, we should be better.
The efficiency of St I will kick in probably more on the on the second half.
Donald LeCavalier: Radar is still in 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 it's positive to be, you know, ahead of last year regarding margin. Okay, thank you very much.
Radars stood on a transition for us so it's good in the first quarter when we compared to last year. We did not have Montreal last year, and obviously that should improve also for the rest of the year so positive to be NOL advisory regarding margin.
Okay. Thank you very much.
Operator: The next question comes from Mr. David McFadden with Cormark Securities. Your next question comes from David McFadden with Cormark Securities. Please go ahead.
A question I guess, John that Mr. David Mcfadden Cormack Securities. Your next question comes from David Magee Mcfadden with core Mark Securities. Please go ahead.
David John McFadgen: Great, thank you. So I just want to first of all 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 in 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 the packaging to be organic?
Great. Thank you.
So I just wanted to first of all I'll just talk about the organic growth that's on the packaging side.
So as you stated earlier, 80% of your business is related so that would seem to imply that the decline in industrial medical was higher.
Hi, guys.
And then on that.
And then barring a change in the economy.
Can you kind of expect that packaging organic.
Tom Amare: decline would sort of be somewhat similar to Q1 for Fiscal 24. Yeah, thank you for the question. A couple of comments here. Industrial has been down for more than a year. So if you compare it to year over year, the decline is not in Industrial Park.
Decline would sort of.
Be somewhat similar to Q1 fiscal 'twenty four.
Yes. Thank you for the question.
Couple of comments here.
Industrial has been down from more than two years, so two compared to year over year due to Chinese not message.
The industrial part of the business.
Tom Amare: Then, if anything, it has to grow now; that's what my that would be. Because we've probably reached about a, On the medical side, that's more, that's fairly newer, that started more at the 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 probably have read across. We're actively talking to our customers to understand how long this is going to last and also accelerate some of the funnel of opportunities we have Now your question for the rest of the year on the food part. I'd say two things about that. Q2 last year was extremely strong in demand, in the food segment, to mention that. This led to a pretty strong result level. Transcontinental Inc.
If anything it has to grow now.
That would be my view.
Yes.
Because we've probably reached the bottom of it on the medical side of that's more that's fairly newer that started more than end of Q4, I would say to you in Q1, and we're talking about a double digit demand reduction, which is no different than what you would have probably read across 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 individual segments.
Now your question for the rest of the year and the food part I'd say two things on that the.
Q2 last year was extremely strong in demand.
The food segment I think we mentioned that just led to a pretty strong result level in <unk>.
Continental in Q2.
Tom Amare: The demand for food is not as strong as it was last year, but it remains solid but not as strong as last year. Last year was an anomaly, if I'm not mistaken. 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 Okay. And then just on the packaging, the time margin, you know, obviously it was up quite a bit in the first quarter. Do you think you can maintain this level now?
The demand in food is not as strong as it was last year remains solid but not as strong as last year.
And then <unk>, if I Miss anything.
For the rest of the year, though beyond Q2, I think we should see some nice some nice pick up given what I said.
Seasonality should help as well as the promotional activities of <unk>.
Most of the retailers.
Okay, and then just on that packaging EBITDA margin, obviously, it was up quite a bit in the first quarter do you think you can maintain this level now.
What's controllable is under control.
So what we've done in the first quarter of just depending on the softer demand.
We put our cost under control shall remain there is no reason why this should go away again.
Tom Amare: What's controllable is under control. So what we did in the first quarter, anticipating the softer demand, is But as far as I understand it, our cost base is now in a good position and shall remain. And also, in Q1, adding on the cost base, the mix was in the right direction, and that helped. And we said last year that we were aiming at being above 15%, and that's what we reached in Q1, and we intend to keep that pace. Okay. And then just on the printing side, you know, the in-store marketing, I think that's growing at a pretty good clip. Can you give us an idea of what the growth is for that segment? Well, I think there are two things to say about 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.
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.
Cost basis now is now in a good position in China remains strong.
And also Q1.
On the cost base that mix was in the right direction that would help.
We said last year that we were aiming at being above 15% and Thats, what we reach in Q1 that we intend to keep that pace for sure.
Okay.
And then just on the printing side.
Yes, the in store marketing I think thats growing pretty pretty good clip can you give us an idea of what the growth is for that segment.
Well I think the two things to say on <unk> first yes, Indeed happy with you with the growth we're running as for our strategy and our plan.
That being said, it's also not happening by chance.
Tom Amare: There is a really high level of synergies between our retail service, namely the Flyers and the ISM; we're talking to the same customer, and we're very happy with the funnel of opportunities that is moving forward in the ISS. Okay, but no indication of growing 10% 20% In the quarter, the business that's ISM for us was roughly 4% growth on the top line. 4%.
There is a really high level of synergies between our retail services, namely the sliders and.
We're talking to the same customers.
And we are very happy with the funnel of opportunities moving.
Moving forward.
<unk>.
Okay.
Okay, but no indication of growing 10%, 20%.
And the core of the business.
Our ISN for us was roughly 4% growth on the topline.
Donald LeCavalier: Okay, it's been growing, you know, we have the We're very happy with this business. It's been growing. As you see, we made a great acquisition, and now we're 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. So it's a good business for us and still growing. Okay. And then lastly, can you give us an idea what the net proceeds would be from the real estate sales, assuming you've completed the law? The outcome, the money outcome, we mentioned that the first wave should bring, you know, we have a value of buildings of about $100 million. Having said that, without going into 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 obviously deduct obviously some millions of dollars to get back to the government of Canada, so that's the target.
Okay.
<unk>.
It's been we had.
We are very happy with this business. It's been growing obviously, we had the right acquisition and now it's north of $250 million in 10 years ago, we had close to $5 million. So it is quite.
It's quite a transformation on the printing side also so whether it's a.
A good business for us and still growing.
Okay.
And then lastly can you give us an idea of what the net proceeds from real estate sales and Sydney completed one.
You mean the.
The outcome of the money outcome, what we mentioned that the first wave should bring.
We have a value of building of about $100 million.
Having said that without going into too much details the tax value of those building, it's quite low because those are building that we own for a long period of time so.
You should deduct.
These settlements of millions of dollars to get back to our government of Canada, but so that's the target.
Donald LeCavalier: Okay. All right. Thank you. Mesdames et messieurs, encore une fois, si vous avez des questions supplémentaires, veuillez, s'il vous plaît, appuyer sur la touche étoile 1. Si vous utilisez la fonction mains libres, veuillez décrocher le récepteur avant d'appuyer sur la touche.
Okay alright, thank you.
Maybe that May Micha Kaufman flex exactly because you cannot <unk>.
A piece of that.
Why not.
<unk>, yes.
Vanda peaceful Nicholas ladies and gentlemen is there any additional questions. At this time. Please press star followed by the one.
Operator: Ladies and gentlemen, if there are any additional questions at this time, please press star followed by 1. As a reminder, if you are using a speakerphone, please lift the hands up before pressing any. Your next question comes from Nevan Yoshim with BMO Capital Markets.
As a reminder, if you are using a speaker phone please lift the handset before pressing earnings.
That's one question question again, Dan event Youll Shim.
<unk> capital markets. Your next question comes from Noah <unk> with BMO capital markets. Please go ahead.
Operator: Your next question comes from Nevan Yoshim with BMO Capital Markets. Please go ahead. 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 session, it was a bit more positive. I think we're doing everything we can to control what happens in this segment.
Thanks, Good morning, guys.
On the printing segment I was just wondering if youre a little bit more optimistic about 2024 outlook relative to what you are forecasting.
Last quarter.
I guess it looks like given a few worthy nuances in the in the outlook section I was a bit more positive.
I think we're doing everything we can to control.
What happens in this in this segment the launch of new products, obviously gives us good hopes.
Nevan Yoshim: The launch of new products, obviously, gives us good hope, but again, it's very volatile, as we talked about earlier. We had a strong Q1 in demand for flyers. The radar looks promising and is promising. Is this giving us an overall feeling of optimism for the year? It's a bit too early to say, in my view. Let's see how Q2 shapes out. The level of promotional activities was good at the beginning of the calendar year. Let's see if it continues. Okay, great. And then maybe just on the printing margins.
But again, it's very volatile as we as we've talked already we had a strong Q1.
And the demand for for fliers.
Radar looks promising and these promising.
Is this giving us 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 activity was good in the beginning of the calendar year Mitsubishi continues.
Okay, Great and then maybe just on printing margins can.
Nevan Yoshim: Can you comment on the outlook for the balance of the year? I think in Q4, you said maintaining margins would be tricky. I just wonder if you have any better visibility into this.
Can you comment on the outlook for the balance of the year and then Q4, you said maintaining margins would be.
Tricky just wondering if you have any better visibility into this.
Donald LeCavalier: Well, as I said earlier, you know, we're ahead of the margin if you compare it to last year, and Radar should be positive overall regarding margins. First, there's an impact of, you know, 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. Ives should bring 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 that we will be ahead of last year regarding margin.
Well as I said earlier.
We're ahead of the margin if you compare to last year in radar should be positive overall regarding margins first as an add back of <unk>.
Selling less paper it doesn't play positively for for margin because the top line will be lower in radar is positive for us.
And we think that the St. I should bring also some synergy is in the second part of the year. So overall.
We want to protect the margin for this business to free cash flow. The most important thing. So we were confident to be ahead of last year regarding margin.
Great. Thank you.
Yeah.
Donald LeCavalier: Great, thank you. 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. 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 line. Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music
In the south to the guest count.
So the point 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.
Hey, Devin assistance, just haven't been that Pat Conte Huh <unk> suite now.
That's helpful.
Question, Ladies and gentlemen, this concludes the conference call for today. Thank you for purchase participating please disconnect your lines.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.
Okay.
Yes.