Q3 2019 Earnings Call

September 5, 2019

Operator: Mesdames et Messieurs, merci d'avoir patienté et bienvenue à la conférence téléphonique concernant les résultats du Q3 2019 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 seront données à ce moment. Nous désirons vous rappeler que cette conférence est enregistrée aujourd'hui, le 5 septembre 2019. Welcome to the TC Transcontinental Q3 2019 Results Conference Call. During the 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, September 5, 2019. I would like to turn the conference over to Yan Lapointe, Director, Investor Relations. J'aimerais maintenant céder la parole à Yan Lapointe, Directeur, Relations avec les investisseurs.

Operator: [Foreign language]. Welcome to the TC Transcontinental Q3 2019 Results Conference Call. During the 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, 5 September 2019. I would like to turn the conference over to Yan Lapointe, Director, Investor Relations. [Foreign language]

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Welcome to the TC transcontinental third quarter 2019 results conference call. During the presentation, all participants will be in listen only mode. Afterwards, we will conduct a question.

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Thank you Gabriel and good afternoon, everyone welcome to keep the Kakap knockout could COVID-19 first quarter results conference call.

Operator: Mr. Lapointe, please go ahead.

The press release, and the M.B. and they would complete financial statement and really the notes were issued earlier today and are available on our website at Peasquito PC.

Yan Lapointe: Thank you, Gabriel, and good afternoon, everyone. Welcome to TC Transcontinental's 2019 Q1 results conference call. The press release and the MD&A with complete financial statements and related notes were issued earlier today and are available on our website at tc.tc. With us today are TC Transcontinental President and Chief Executive Officer, François Olivier, and 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 or interview requests. Please be reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. Please refer to the MD&A for a complete definition and reconciliation of such measures to IFRS financial measures.

With us today are I'll kick it off.

President and Chief Executive Officer.

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Before I turn the call over to management I would like to find that this conference call is intended for the financial community.

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Please be reminded that some of the financial measures its costs over the course of this conference call or not like before.

Please refer to the Mdna for complete definition and reconciliation of such measures twice as far as financial measures. In addition, this conference call contains forward looking statements.

These statements are based on the current expectations of management and information available as of today and the involve numerous risks and uncertainties known and unknown.

Yan Lapointe: In addition, this conference call might 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 2018 annual MD&A and in the latest annual information form. I would now like to turn the call over to François Olivier.

The risks uncertainties and other factors that could influence actual results are described in <unk> 2018, and you will then give me and in the latest annual information form.

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Thank you Riyadh and good afternoon, everyone.

The quarter marks another step as we continue to progress in our transformation.

We continue to optimize our cost structure to offset lower volume in printing.

To realize synergies and are in order to improve margins and packaging.

François Olivier: Thank you, Yan, and good afternoon, everyone. The quarter marks another step as we continue to progress in our transformation. We continue to optimize our cost structure to offset lower volume in printing and to realize synergies in order to improve margins and packaging. Following the recent announcements, you can see that we have been active in managing our portfolio, and we believe that these transactions will create value for the company. The sales of our Fremont, California, facility to Hearst is bringing significant cash, allowing us to accelerate the deleveraging of our balance sheets in line with our strategy. As for the acquisition of Trilex, it will nicely complement our activities in Latin America and enable future growth in that region. We will also continue to be active in managing our portfolio in order to be ready when opportunities arise.

Following the recent announcements you can see that we have been active in managing our portfolio and we believe that these transactions will create value for the company.

The sales of our Fremont, California facility to Hertz is bringing significant cash, allowing us to accelerate the deleveraging of our balance sheets and aligned with our strategy.

As for the acquisition of Trialing, It will nicely complement our activities in Latin America enable future growth in that region.

We will also continue to be active in managing our portfolio in order to be ready when a fortunate to use arrives.

Overall, our third quarter results reflect many of the same trends we saw in the first half of the year.

You know I like some of the key factors that contributed to our results.

François Olivier: Overall, our Q3 results reflect many of the same trends we saw in the H1 of the year. Let me highlight some of the key factors that contributed to our results. In the quarter, the packaging sector accounted for 54% of our consolidated revenues and 44% of our Adjusted EBITDA. Revenues in packaging were softer in the quarter due to the anticipated reduction in volume for our consumer and pet food segment, as we have mentioned on our last call, and to a temporary impact of a new European legislation in our agricultural segment in Latin America. In both cases, we expect to see growth next year. In terms of profitability, we continue to be very pleased with the synergies we realize from our Coveris acquisition and their impact on our packaging margins in the quarter.

In the quarter, the packaging sector accounted for 54% of our consolidated revenues and 44% of our adjusted EBIT, though.

Revenues in packaging were softer in the quarter due to the anticipated reduction in volume for our consumer and pet food segment. As we have mentioned on our last call and to a temporary impact of a new European legislation and our agricultural segment and Latin America.

In both cases, we expect to see growth next year.

In terms of profitability, we continue to be very pleased with the synergies we realized from our Congress acquisition and their impact on our packaging margins in the quarter.

Adjusted EBITDA margin continues to improve moving from 11.7% in Q1 to 12.5% in Q2 and now 13.2% for this quarter and we expect further improvement over the next two years.

François Olivier: Adjusted EBITDA margin continues to improve, moving from 11.7% in Q1 to 12.5% in Q2, and now 13.2% for this quarter, and we expect further improvement over the next two years. In addition to our focus on margin improvements, we are also setting the foundations for growth. First, we have a solid portfolio of award-winning products, and we will continue to innovate to ensure we remain ahead of our customer needs. Second, we are also ensuring that we have the right sales team and processes to exceed our customers' expectations and to win new ones. Over the last quarter, we continued to renew multi-year contracts with major customers, giving our business long-term stability. Overall, we are confident about our investment thesis for the packaging sector.

In addition to our focus on margin improvements, we're also setting the foundations for growth.

First we have a solid portfolio will outward winning products and we will continue to innovate to ensure we remain ahead of our customer needs.

Second we're also ensuring that we have the right sales team and processes to exceed our customers expectations and to win new ones or the last quarter, we continue to renew multiyear contracts with major customers, giving our business long term stability.

Overall, we are confident about our investment pieces for the packaging sector. While revenues are lower than what we would have liked margins are trending upward towards our target and we remain very bullish on flexible packaging as a significant engine of future growth.

François Olivier: While revenues are lower than what we would have liked, margins are trending upward towards our target, and we remain very bullish on flexible packaging as a significant engine of future growth. Turning to our printing sector, the softer results we saw at the beginning of the year continued in Q3, essentially due to a higher-than-expected decrease in printed flyers revenue, having direct impact on our profitability. Recently, we took actions to adapt our cost structure to volume to protect our profitability, and our platform optimization initiatives are also progressing well. The first state-of-the-art press from our former plant in Fremont, California, is fully operational in Montreal, and the second one in Toronto will gradually be put in service in the next few weeks. The additional capacity from these presses will allow us to complete the closure of Brampton's facility at the end of this year as planned.

Turning to our printing sector. The softer results we saw at the beginning of the year continued in Q treat essentially due to a higher than expected decrease in printed Flyers revenue.

Having direct impact on our profitability.

Recently, we took actions to adapt our cost structure to volume to protect our profitability and our platform optimization initiatives are also progressing well.

The first state of the Art press from our former plant in Fremont, California is fully operational in Montreal and the second one in Toronto will gradually be put in service in the next next few weeks.

The additional capacity from these processes will allow us to complete the closure of Brampton facility at the end of this year as flat.

These actions will have a positive impact on our profitability in the fourth quarter of this year.

The full impact flowing in 2020.

François Olivier: These actions will have a positive impact on our profitability in Q4 of this year, with the full impact flowing in 2020. Recent focus groups with consumers and discussions with our clients continue to confirm that our retailer-related service offering remains a highly relevant and effective marketing tool for Canadian retailers. Looking ahead, we feel confident that the revenues decline over the quarters to come will be lower than what we have seen in Q1, Q2, and Q3 this year. More predictable revenues, combined with our cost optimization measures, will help to mitigate the effects of declining volumes on our year-over-year profitability. Turning to our other verticals, we saw good growth in our pre-media and our in-store marketing product offering, a space in which we continue to pursue additional sources of revenues.

Recent focus groups with consumers and discussions with our clients continue to confirm that our retailer related service offering remains a highly relevant and effective marketing tool for Canadian retailers. Looking ahead, we feel confident that the revenues declined over the quarter stick car will be lower than what we have seen in the first three quarters. This year.

More predictable revenues combined with our cost optimization measures will help to mitigate the effects of declining volumes on a year over year profitability.

Turning to our other verticals, we saw good growth in our pre media.

And our in store marketing product offering space in which we continue to pursue additional sources of revenues.

Regarding our newspaper and magazine printing verticals the decline in revenues followed the same trends as in previous quarters.

François Olivier: Regarding our newspaper and magazine printing verticals, the decline in revenues followed the same trends as in previous quarters. Now, for our media activities, once again, we are pleased with our results for the quarter. Our education group drove high revenues growth in the quarter and delivered double-digit EBITDA improvement versus last year. Let me now say a few words about our sustainability initiatives. In addition to continue investing in R&D to ensure that plastic packaging is effectively managed at its end of life, an important part of our sustainability approach is to work in partnership with others to create a circular economy for plastic, as we have done in the past for a circular economy for paper. To that effect, we remain active with our discussions with stakeholders from across the plastic value chain, as well as with elected officials from the different government levels.

Now for our media activities. Once again, we are pleased with our results for the quarter, Our education group drove higher revenues growth in the quarter and delivered double digit EBIT improvement versus last year.

Let me now say a few words about our sustainability initiatives.

In addition to continue investing in R&D to ensure that plastic packaging is effectively manage of its end of life and important part of our sustainability approach is to work in partnership with others to create a circular economy for plastic as we have done in the past for a circular economy for paper.

To that effect, we remain active with our discussions with stakeholders from across the plastic value change as well as with elected officials from the different different covenant levels.

François Olivier: On that note, I am pleased to announce that we have started to manufacture our new Publisac bags made from 100% recycled plastic. These new bags will remain 100% recyclable, and mark a first milestone in the creation of a circular economy for plastic in Quebec. They will be rolled out in the Montreal metropolitan community in a few weeks and everywhere in Quebec by the end of the year. I would like to also point out that we have released this summer our latest three-year corporate social responsibility plan titled Acting Together, which puts down another marker in our sustainability journey by committing to a new set of specific and quantifiable targets. Our 2019-2021 plan features ambitious goal reflective of the ever evolving and growing environmental and social concerns.

On that note I am pleased to announce that we have started to manufacture our new probably SEC bags made from 100% recycled plastic these new bags will remain 100% recyclable that and Mark a first milestone and the creation of a circular economy for plastic in Quebec.

They will be rolled out in the Montreal Metropolitan community in a few weeks and everywhere in Quebec by the end of the year.

I would like to also point out that we have released this summer our latest three year corporate social responsibility plan title acting together, which puts down another marker in our sustainability journey by committing to a new set of specific and quantifiable targets are 2019, 2021 plan features ambitious goal reflective of the ever evolving and growing environmental and social concerns specifically, we set ourselves 11 meaningful objective along for axis, our people our operations, our products and our communities, including targets to reduce our environmental footprint, those who have not already read our plan would like.

François Olivier: Specifically, we set ourselves 11 meaningful objectives along four axes, our people, our operations, our products, and our communities, including targets to reduce our environmental footprint. For those who have not already read our plan, I would like to invite you to check it out on our website. In conclusion, in our packaging sector, we will maintain a strong focus on manufacturing efficiency and make sure to put in place all the required elements to drive long-term growth. We expect the factors that impacted revenues in Q3 to continue in Q4. With that being said, we expect to see good organic growth next year, and we remain committed to continue improving our Adjusted EBITDA margin. On the print side, we expect to see in Q4 the continuation of current trends, but to a lesser extent.

You invite you to check it out on our website.

In conclusion, and our packaging sector, we will maintain a strong focus on manufacturing efficiency and make sure. It's put in place all the required elements to drive long term growth.

We expect the factors that impacted revenues in Q3 to continue in Q4 with that being said, we expect to see good organic growth next year and we remain committed to continue improving our adjusted EBITDA margin.

On the print side, we expect to see in the fourth quarter, the continuation of current trends, but to a lesser extent.

Brent revenues in Q4, combined with our cost optimization initiative will contribute more going forward and help margins.

François Olivier: Print revenues in Q4, combined with our cost optimization initiative, will contribute more going forward and help margins. We will continue to proactively adjust our cost structure to volume trends, and we remain confident that our print sector will remain a strong cash flow generating business for years to come. Finally, in terms of capital allocation, our top priority is to use our cash flow from operations to continue to deleverage the company. With that, I'll turn it over to Donald.

We will continue to proactively adjust our cost structure to volume trends and we remain confident that our print sector will remain a strong cash flow generating business for years to come.

Finally in terms of capital allocation, our top priority is to use our cash flow from operations continued to deleverage the company.

With that I'll turn it over to doing.

Thank you Francois and good afternoon as you saw in our quarterly report on our third quarter results reflect many of the same dynamics, we experienced in the first half of the year.

Donald LeCavalier: Thank you, François, and good afternoon. As you saw in our quarterly reports, our Q3 results reflect many of the same dynamics we experienced in H1 of the year. In the quarter, both our revenues and our adjusted operating earnings decreased by 4%, mainly due to the decline in our printing business. For our packaging business, the combined adjusted EBITDA margin for the sector was 13.2% for the quarter, 100 basis points improvement versus last year. During the quarter, we benefited from cost optimization initiatives, acquisition synergies, and lower resin price. In terms of synergies, we continue to exceed the target set last year, mainly from procurement. In the coming quarters, we should start seeing savings from film and plate insourcing, and are confident to exceed our $20 million of cost saving by May of next year.

In the quarter, both our revenues and our adjusted operating earnings decreased by 4%, mainly due to the declining our printing business.

For our packaging business the combined adjusted EBITDA margin for the sector was 13.2% for the quarter 100 basis point improvement versus last year.

During the quarter, we benefited from cost optimization initiative acquisition synergies and lower resin prices.

In terms of synergies, we continue to exceed the targets set last year, mainly from procurement in the coming quarters, we should start seeing savings from fin and played in sourcing and are confident to exceed our 20 million U.S. dollar cost saving by May of next year.

No let me go over up.

Some of the elements that affected our profitability in the printing sector.

Donald LeCavalier: Now, let me go over some of the elements that affected our profitability in the printing sector. The organic decline in our revenues had a direct impact of CAD 12.9 million on our adjusted operating earnings since our platform structural costs were somewhat flat compared to last year. Note that this amount also include close to CAD 3 million from the transitional service to Hearst, which ended in Q4 last year. In terms of cash, we had a good quarter for cash flows. We generated more than CAD 64 million of free cash flow before interest and dividend. As planned, we use our free cash flow to repay debt, which declined by CAD 64 million during the quarter, including the effect of the US exchange rate. We also distributed 19.2 million in dividends.

The organic decline in our revenues at the direct impact of 12.9 million on our adjusted operating earnings since our platform structural costs were somewhat flat compared to last year.

Note that this amount also includes close to $3 million from the traditional service to hers, which ended in Q4 last year.

In term of cash we had a good quarter for cash flows we generated more than $64 million of free cash flow before interest and dividend.

As planned we use our free cash flow to repay debt, which declined by $64 million during the quarter, including the effect of the U.S. exchange rate. We also distributed 19.2 million in dividends.

Cash flows from operating activities improved by more than 13 million to above 90 million net of $13 million of tax payment. We also allocated 26 million to Capex and paid 18 million of interest expense.

Donald LeCavalier: Cash flows from operating activities improved by more than CAD 13 million to about CAD 90 million, net of CAD 13 million of tax payment. We also allocated CAD 26 million to CapEx and paid CAD 18 million of interest expense. Our effective tax rate in the quarter was 19.2%, which is lower than the 25.8% rate last year. This is mainly due to the Coveris acquisition as we generated more pre-tax profits in the US and other jurisdictions that have a lower tax rate than our Canadian operations. At the end of the quarter, our net debt ratio stood at 2.7 times, down from 2.8 times at the end of Q2 and 3.8 times at the end of last year.

Our effective tax rate in the quarter was 19.2%, which is lower than the 25.8 rate last year.

This is mainly due to the Congress acquisition as we generated more pre tax profits in the U.S. and other jurisdictions that have a lower tax rate than our Canadian operations.

At the end of the quarter, our net debt ratio stood at 2.7 times down from 2.8 times at the end of Q2 and 3.8 times at the end of last year.

I would also like to point out that if we include the sale of our Fremont building too early.

Our pro forma ratio will stand at 2.5 times.

Donald LeCavalier: I would also like to point out that if we include the sale of our Fremont building to Hearst, our pro forma ratio will stand at 2.5x. We are looking at several asset monetization opportunities that could, like the sale of Fremont, help us to accelerate the deleverage of our balance sheet without impacting long-term opportunities. The additional liquidity, in addition to strengthening our balance sheet, will also provide flexibility to pursue opportunities in line with our transformation. Now, to our outlook for Q4 of fiscal 2019. In our packaging sector, we expect the decline of revenues in Q4 to be greater than in Q3. You may recall that Q4 last year was a strong quarter for packaging in terms of revenues.

We are looking at several asset monetization opportunities that could like the sale of Fremont help us to accelerate the dillard rage of our balance sheet without impacting long term Fortunately piece.

The additional liquidity in addition to strengthening our balance sheet will also provide flexibility to pursue opportunities in line with our transformation.

Now to our outlook for the fourth quarter of fiscal 2019.

In our packaging sector, we expect a decline of revenues in Q4 to be greater than in Q3.

You may recall that Q4 last year was a strong quarter for packaging in terms of revenue.

Furthermore, the decrease comes from the same element, we mention in Q3 lower volume in our consumer and Pet Foods segment, Alan just legislative change, having a temporary impact on our Latin America business and also impacted by the lower costs for some reason.

Donald LeCavalier: Furthermore, the decrease comes from the same element we mentioned in Q3: lower volume in our consumer and pet food segment, a legislative change having a temporary impact on our Latin America business, and also impacted by the lower cost of some resins. We will continue to focus on synergies and manufacturing efficiency to drive our costs down. In our printing sector, we should see a continuation of current trends in most of our vertical, including retailer-related service, with but to a lesser extent for Q4. It's important to note that we expect some of our cost reduction initiative, like the transfer of the Fremont presses and the closing of Brampton, to contribute more meaningfully in Q4, which should help our profitability. We continue to anticipate growth in our in-store marketing product and book printing verticals.

We will continue to focus on synergies and manufacturing efficiency to drive our costs down.

In our printing sector, we should see a continuation of current trends in most of our vertical including retailer related service would but to a lesser extent for the fourth quarter.

It's important to note that we expect some of our cost reduction initiatives like the transfer of the free month dresses and the closing of rent and contribute more meaningfully in the fourth quarter, which will add should help our profitability.

We continue to anticipate growth in our in store marketing product and book printing vertical.

As far as I mentioned, we will continue to carefully monitor trend volumes and we will adjust our cost base accordingly in order to protect our profitability.

Donald LeCavalier: As François mentioned, we will continue to carefully monitor print volumes, and we will adjust our cost base accordingly in order to protect our profitability. We also expect, in Q4, the last negative impact of our revenue and profitability of about -CAD 3 million related to transitional service that came in last year as part of the Hearst transaction. As we recently announced the sale of our Fremont building to Hearst, we will recognize an accelerated related depreciation of deferred revenues and profit of about $10 million in Q4. These deferred revenues will have been otherwise recognized until 2025 at around $2 million annually. In the media sector, we expect continued good performance in terms of revenues and profitability in 2019.

We also expect in Q4, the last negative impact of our revenue and profitability of about 3 million related to the transitional service that came in last year as part of the Urs transaction.

But as we recently announced the sale of our Freeman building to hers, we will recognize an excellent ready depreciation of deferred revenues and profit about 10 million units in the fourth quarter.

These deferred revenues will not be order wise recognize until 2025 at around 2 million us annually.

In the media sector. We expect continued good performance in terms of revenues and profitability in 2019.

Four to 2019 PML, assuming the stock price at the end of the quarter you should model for full year corporate costs at EBITDA level of about $23 million.

As a reminder, a change of one dollar in our stock price impacts are resolved by close to $1 million.

Donald LeCavalier: For the 2019 P&L, assuming the stock price at the end of the quarter, you should model for full year corporate costs at EBITDA level of about CAD 23 million. As a reminder, a change of CAD 1 in our stock price impacts our result by close to CAD 1 million. Recall that we had a positive impact of the stock-based compensation expense of +CAD 13 million in Q4 last year due to the share price movements. Our financial expense is expected to be between CAD 65 and 70 million. Our effective tax rate is expected to be in the low to mid-20s%. In terms of use of cash for the year, you can assume CapEx slightly above CAD 100 million. As for cash tax for the year, you can assume about CAD 70 million.

Recall that we had a positive impact of the stock based compensation expense of $13 million in the fourth quarter last year due to the share price movements.

Our financial expense are expected to be between 65 and $70 million.

Our effective tax rate the tax rate is expected to be in the low to mid Twentys range.

In terms of use of cash for the year, you can assume capex slightly above $100 million as for cash tax for the year, you can assume about $70 million.

Donald LeCavalier: To conclude, our priority is to deliver profitable long-term growth and create value for our stakeholders. In addition to our asset monetization initiative, we expect to continue to generate significant cash flows, which should enable us to allocate capital towards reducing our debt, strengthening our balance sheet, and providing flexibility. On that note, we will now proceed with the question period.

To conclude our priorities to deliver profitable long term growth and create value for stakeholders. In addition to our asset monetization initiative, we expect to continue to generate significant cash flows, which should enable us to allocate capital towards reducing our debt strengthening our balance sheet and providing flexibility.

On that note that we will not proceed with the question for you.

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Operator: 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 ont été acheminées. Veuillez également vous assurer de décrocher le récepteur de votre appareil téléphonique si vous utilisez la fonction mains libres avant d'appuyer sur les touches. Un moment, s'il vous plaît, pour la première question. 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 one on your touchtone phone. You will hear a tone acknowledging your request. Your questions will be polled in the order they are received.

Operator: [Foreign language]. 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 one on your touchtone phone. You will hear a tone acknowledging your request. Your questions will be polled in the order they are received.

The young men with this you need the discussion to this upturn, but that they did for next year did I phone may have ended peacefully too.

Our mass affluent customer.

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 one on your Touchtone phone.

You will hear a tone acknowledging your request your questions will be pulled in the order they are received.

Please ensure you lift the handset if you are using a speakerphone before pressing any keys.

One moment. Please for your first question Ziv, Omitting then kissel.

Ms. Yu masking the Vista Scotiabank.

Your capacity. Your first question comes from the line of Mark Neville from Scotiabank. Please go ahead.

Hey, good afternoon.

Operator: Nous avons maintenant une question de Monsieur Mark Neville de Scotiabank. Veuillez procéder. Your first question comes from the line of Mark Neville from Scotiabank. Please go ahead.

Operator: [Foreign language]. Your first question comes from the line of Mark Neville from Scotiabank. Please go ahead.

Maybe just a first question on Prince the declines seem to accelerate this quarter. How should just curious I mean is that specific to say to customers that you spoke to earlier. This year is it now a bit more broad based with the retail services.

Mark Neville: Hey, good afternoon. Maybe just the first question on print. The declines seem to accelerate this quarter. I was just curious, is that specific to the same two customers that you spoke to earlier this year? Is it now a bit more broad-based with the retail services?

Now is the same as the same customers and.

I'll be 60 why.

You have a more confident going forwards.

This trend the strategy of reducing their page down and and all that I've started.

François Olivier: No, it's the same customers and you know, basically why we feel more confident going forward is this trend, this strategy of reducing their page count and all that started somehow in Q4 last year was unexpected, but it came. So when we look forward, we're looking at comparables that are a lot less difficult and we feel that those customers have cut to the level that is, I don't think it's sustainable for them to cut more. That's what we feel anyway, because when we looked at their results in the market, there's certainly an impact on their business of using less flyers.

Somehow in Q4 last year was unexpected but it came so when we look forward we're looking at.

Comparable that are that are a lot less difficult.

And and we feel that those customer.

Cut to the level that is.

I don't think it's sustainable for them to cut more.

That's what we feel and we because when we look at their results in the market. There certainly have an impact on their business of using less suppliers and then some of.

Some of them have started to do a.

Pushed back again, a little bit more and that's one thing easier comparable then.

François Olivier: Then some of them have started to push back again a little bit more, and that's one thing, easier comparables. Then the other thing is that we have now started to decrease our cost structure. We're operating with a cost structure that in Q4 is gonna be more effective, you know. Then we're gonna complete the shutdown of a huge factory we have in Ontario at the end of the year. Come Q1 and Q2 next year, the cost base will be further reduced.

And and then the other thing is that we have now started to decrease our cost structure. So we're operating with a cost structure that in Q4 that is going to be.

That is going to be more effective and then we got to complete the shutdown of a huge factor we have and in Ontario.

For the year so.

From Q1, and Q2 next year across space will be.

To further reduce so thats why we feel that.

They are the biggest impact of this is.

But it was is isn't it.

It's not going to be as every year going forward that it was in the first three quarters this year.

Okay.

François Olivier: That's why we feel that the biggest impact of this is a little bit not gonna be as severe going forward that it was in Q1, Q2, Q3 this year.

It's in the packaging I'm just curious I'm just the legislative changes, maybe just what they were and why those would have only temporary impacts on the business.

Yeah.

Mark Neville: Okay. Just in the packaging, I'm just curious, just the legislative changes, maybe just what they were and why those would have only temporary impacts on the business?

Transcontinental is a leader in helping banana producer and central and South America to protect the crop plastic bags.

The active ingredient in there and the ingredients of varies by regions because of the various.

François Olivier: Yeah. Transcontinental is a leader in helping banana producer in Central and South America to protect the crop with plastic bag that have active ingredient in there. The ingredients varies by regions because the various, you know, disease and pests and molds that could attack banana. We are a very important part of improving yield for farmers. One of the ingredients that is part of the, I would say, the higher end bag, the market leader, has been banned by the European legislation. Europe is a huge export country for our customers. Usually what happen when they do that, they give you a six month to a year, you know, delay to adjust.

Disease, and pest and molds that could affect banana. So we are a very important part of improving yield or for farmers and one of the ingredients that as part of the I would say the higher end back a market leader.

It's been a has been banned by a European legislation Europe is a huge exporting country for our customers and usually what happen when they do that they give you a six month where year.

They're late to address and we were.

We were aware of that so we were.

We are already a product that we were working on that we were ready to introduce in the market next year.

François Olivier: We were aware of that, so we had already a product that we were working on that we were ready to introduce in the market next year. For reasons that are beyond our expectation or understanding and the one of our customer, they made that effective right away, which forced our customer to move to a product that is less efficient, is a similar product, but with less ingredient. The value of that product for the customer and for our revenue is about 40% less. We didn't lose business. We are selling the same number of units. Obviously our customer are not happy because those bags are not as effective for their yield.

For reasons that are beyond or beyond our expectation our understanding in the one of our customer they made that effective right away, which force our customer to move to a product that is less efficient.

It is a similar product, but with less ingredient, but the value of that product for the customer and for our revenue is about 40% less so we didnt lost business. We we are selling the same number of units, but obviously our customer are not happy because those those banks are not as effective for their yield and they're working very hard with us to to have our new products are approved by the maturity you have to understand that every single government.

Its Costa Rica under us.

I think whats or do you need to approve our new product our new product is ready has been tested in the field.

François Olivier: They're working very hard with us to have our new product approved by the authority. You have to understand that every single government, whether it's Costa Rica, Honduras, you know, Ecuador, they need to approve our new product. Our new product is ready. It's been tested in the field. It's actually better than the product that it replaced. We feel it's gonna take between 3 to 6 months to have our new product authorized by all these countries and by the European legislation. When then, you know, it's actually gonna be a growth for TC and actually better than the position we were in. For the next six months, we're selling a product that yields about 50% less revenue per bag we sell because this is a bag with less ingredients in there.

Actually better than the product that is to replace what we feel is going to take between three to six months to have our new product authorized by all these countries and by the European legislator.

And even when Dan.

It's actually going to be a growth for Tc is actually better than the position we were in but for the next six months, we're selling a product.

Yield above 30% less revenue per bag, so because this back with less ingredients in there.

Okay.

I mean, I know you haven't provided 2020 guidance, but I guess, just given sort of this temporary impacts has some of the some of the declines you're seeing in the consumer and Pat.

Mark Neville: Okay. I mean, I know you haven't provided 2020 guidance, but I guess just given sort of this temporary impacts as some of the declines you're seeing in the consumer and pet, presumably the H1 of next year, you're still seeing some organic declines in packaging until you sort of lap this or work through this.

Presumably the first half of next year, you're still seeing some organic declines and packaging spend so you sort of lap this or work through this.

No not really.

Q4 was very strong last year, which mean Q1 was very soft.

This year Q4 is going to be more normal which mean.

François Olivier: Not really. Q4 was very strong last year, which means Q1 was very soft.

Mark Neville: Yeah.

François Olivier: This year, Q4 is gonna be more normal, which means Q1 will probably be better. We expect next year to have organic sales growth throughout the year, and we expect our profit and our EBITDA margin to improve next year. This is what our plans call for. As you know, this business, I've said it many times, it is not like printing flyers every week and printing newspaper every day where, you know, quarter to quarter the business is a little bit more predictable. This business, you have some quarters that are fantastic and some others that of the inventory and also the resin price.

Q1 will probably be better. So we expect next year to our organic sales growth throughout the year and we expect our profit and our EBITDA margin to improve next years. This this is what our plans call for as you know this business I've said it many times is not like printing Flyers every week and printing newspaper everyday were.

Quarter to quarter to business is a little bit more predictable.

This business you have some quarter that are fantastic and some others that are.

Our.

Or less because of the inventory and also the resin price you know when the resin price move up and down.

And to be a big part of what we sell to the customer so.

To factor that in when you look at the organic growth, but all in all for next year, we're looking at organic growth our sales.

François Olivier: You know, when the resin price move up and down, that tend to be a big part of what we sell to the customer, so you have to factor that in when you look at organic growth. All in all, for next year, we're looking at organic growth on our sales, and a bit improvement and margin improvement.

And an EBITDA improvement and margin.

Okay, maybe I can just one last question.

The asset monetization opportunities I'm, just curious if you can.

Give us maybe an order of magnitude of how significant those could be maybe that exact numbers, but maybe just ballpark at first.

Mark Neville: Okay, maybe I can just ask one last question. The asset monetization opportunities. I'm just curious if you can give us maybe an order of magnitude of how significant those could be. Maybe not exact numbers, but maybe just ballpark it for us.

Well as you know Mark we have some a few buildings in Canada that we hold most of our footprint in Canada that we are four period is owned by us on.

We closed some of those the plant in the recent years. So we have to believe that we can monetize.

François Olivier: Well, as you know, Mark, we have some few buildings in Canada that we own. Most of our footprint in Canada that we had for print is owned by us. We closed some of those plants in the recent years. So we have few buildings that we can monetize. Obviously not the same value of what we just announced for Hearst, but I will say maybe about 50% of what we have for Hearst can be achievable over the next few years, for sure.

It is not the same value of what we just announced porkers, but.

I will say, maybe about 50% of what we have for ers can be attributable over the next few years for sure.

Okay. Thanks, I'll get back in queue. Thanks.

Thank you.

Your next question comes from the line of Adam Shine with National Bank Financial. Please go ahead.

Thanks, a lot first let me just to elaborate on the earlier question on the Q2 call you talked about.

Mark Neville: Okay. Thanks. I'll get back to you. Thanks.

François Olivier: Thank you.

Operator: Your next question will come from the line of Adam Shine of National Bank Financial. Please go ahead.

The nature of packaging and Q4 revenues to be relatively simple or potentially to the Q widened quite the revenue.

Adam Shine: Thanks a lot. First of all, maybe just to elaborate on the earlier questions. You know, on the Q2 call, you had talked about, you know, the nature of packaging and, Q4 revenues being relatively similar potentially to the Q1 2020 revenues, you know, and, you alluded earlier to some of that dynamic. Given the nature of the legislation issue, does that sort of nuance a little bit, at least what Q1 2020 could look like based on your prior expectations or, you know, puts and takes, contract wins sort of mitigate that out?

And you alluded earlier to some of that dynamic.

Given the nature of the legislation the issue does that sort of nuance a little bit at least what Q1 20 could look like based on your prior expectations or.

Puts and takes contract quaids sort of mitigate that out.

Yes, well, obviously Q1 for Latam is not going to be great because of that.

No. We don't expect that to have all the sign up of all the all the various country.

François Olivier: Yeah. Well, obviously Q1 for LATAM is not gonna be great because of that.

Adam Shine: Okay.

François Olivier: 'Cause we don't expect that to have all the sign off of all the various countries. LATAM is about, you know, 10% of our revenue. Yeah, we could be suffering there, but we feel that the other 90% is gonna perform good in Q1. Yeah, it would have been better if LATAM would have not had that issue. On the other end, when this thing is gonna get approved, the whole market will wanna grab that bag and then, you know, probably in Q3, Q4, you will probably see LATAM overperforming big time. Yes, Q1 and Q2 might be affected by LATAM, but in perspective, LATAM is 10% of our revenue.

But last time is about 10% of our revenue. So yes, we could be suffering there, but but we feel that the other 90% is going to perform good and then Q1. So yes, we would have been better if Latam would have not at that issue on the other end. When this thing is going to get approved the whole market will want to grab that back and then.

Probably in Q3, Q4, you will probably see Latam overperforming.

Big time, so, yes, Q1, and Q2 might be affected by by last time, but button perspective, let them just 10% of our revenues that will have an impact, but that's not 40% of our revenues 10%.

Perfect understood and just.

François Olivier: that will have an impact, but that's not 40% of our revenue, it's 10%.

Obviously in regard to the objective of getting at lease or heating hitting the 13% don't exit at night TWB went up to 13.2% in the Q3.

François Olivier: that will have an impact, but that's not 40% of our revenue, it's 10%.

And you talked earlier about.

Adam Shine: Perfect. Understood. Just, you know, obviously, you know, in regards to the objective of getting at least or hitting thirteen percent on exit F19, I mean, you went up to 13.2% in the Q3, and you talked earlier about, you know, the improvement quarter to quarter in regards to margin expansion in packaging this year. When we get to Q4 and acknowledging, you know, perhaps a bit more pressure at the top line, do we still think of potential margin expansion or, you know, is that sort of 13.2% maybe a bit of a high watermark for F19? Then obviously, you know, you certainly build going forward, at least on an annual basis into 2020 and 2021.

The improvement quarter to quarter in regards to margin expansion in packaging. This year, when we get to Q4.

And acknowledging perhaps a bit more pressure at the top line.

Do we still think of potential margin expansion or.

Is that sort of 13.2, maybe a bit of a high watermark.

For EPS 19 to that obviously, you certainly build going forward at least on an annual basis. It did 20 and 21.

Yeah, well were.

It's very hard to give a guidance over quarter, but what I can tell you about Q4, as we expect Q4 margins to be better than last year Thats for sure.

And when that when we look over the next two years, we believe that we will.

François Olivier: Yeah. Well, we're, you know. It's very hard to give guidance over a quarter, but what I can tell you about Q4 is we expect Q4 margins to be better than last year, that's for sure. When we look over the next two years, we believe that we will be above the 13%. You understand that our plan call for 13%, 14%, and 15% over a two-year period. Then we believe that we have the ability in the quarters to come, you know, like if you look the two years in front, to continue to move in that direction. All right.

Be above the 13% you understand that our plan calls for 13, 14, and 15% over a two year period.

And then we believe that we have the ability.

In the quarters to come if you look.

Two years on front.

Continued to move in that direction.

So our two comments quarter by quarter, but we feel pretty good about our ability to to improve our margin.

And 2020 compared to what they were in 2019.

François Olivier: It's hard to comment quarter by quarter, but we feel pretty good about our ability to improve our margin in 2020 compared to what they were in 2019.

Okay, and maybe just turning to the second lien lot of stuff over the prior month in terms of effort on your part.

In terms of communicating I think with the government's certainly you were before the provincial.

Adam Shine: Okay. Maybe just turning to Publisac. I mean, a lot of stuff over the prior months in terms of efforts on your part in terms of communicating, I think with the government, certainly you were before the provincial committee recently. You launched the microsites. Have you gotten any traction from the microsites in regards to consumer support? I know it's very early days. We're probably two weeks into that process, but any additional color as to where, you know, your thinking is in regards to any potential momentum you're driving towards perhaps a resolution with the City of Montreal? Thanks.

Committee recently, you launch the micro sites have you gotten any traction from the micro sites in regards to consumer support I know, it's very early days for probably two weeks into that process, but any additional color as to where your thinking is in regards to any potential momentum you're driving towards perhaps a resolution with the city of Montreal. Thanks.

Yet, we're we feel pretty confident about this we will file a we spent a whole lot of time.

Talking to government official both at the municipal level and the provincial level and people now understand.

François Olivier: Yeah. We feel pretty confident about this whole file. We spent a whole lot of time, you know, talking to government official, both at the municipal level and the provincial level. People now understand that the Publisac is a very responsible and useful product, and they understand what it does for the retailer, for the consumer, and for the weekly presses in Quebec that all these weekly paper will not exist without the Publisac. I think we've made, you know, shed a lot of light on what the Publisac is and not, and have a very favorable reception at all, you know, politician or legislator. We feel pretty good about this issue being resolved.

Second as a very responsible and useful product and they understand what it does.

For for the retailer for the consumer.

And for the weekly presses in Quebec.

All these weekly paper will not exist without the police side.

So I think we've made.

Shed a little light on what the precise isn't not and a very favorable reception in Oh.

Oh, The addition, or.

Legislator and we feel pretty good about this issue.

Being results, having said that we want to make sure to the population understand.

But the population understand because 78% of the people in Quebec read that book, just because of the save a dollar.

Acting on it every week.

So we feel that this issue.

François Olivier: Having said that, we wanna make sure too that the population understand. The population understand because 78% of the people in Quebec read the Publisac because they save about CAD 1, you know, acting on it every week. We feel that this issue needs to go through a process that it needs to go through, but we feel very confident on the model of the Publisac. We've introduced, like I said in my remarks, a lot of improvement. The paper that is in the Publisac is made with waste and is fully recyclable. We've been able, with our plastic division, flexible packaging division, to create a bag for the Publisac that is fully made with waste as well and fully recyclable.

Needs to go through.

The process that it needs to go through what we feel very confident.

On the on the model of the Destock and.

We've introduced like I said in my remarks.

A lot of.

Improvement.

The paper that is in the public sector is made with weights and is fully recyclable.

And weve been able with our plastic division.

Fixable packaging division to create a back.

For the second that is fully made with waste as well and fully recyclable and that started to have some conversation about being in creating a model for circular economy for plastic year in Quebec.

And we were talking about.

Yes, I cover a number for sure look though.

François Olivier: That has started to have us some conversation about creating a model for circular economy for plastic here in Quebec. We're talking about that with various government official about creating that ecosystem in Quebec to start to recycle not only the Publisac, but a lot of other plastic to create the same kind of circular economy we did create with paper with plastic. It started with a lot of negative vibes, but now we have a lot of positive discussion that could turn out to be positive for Transcontinental overall.

Creating that ecosystem in Quebec to start to recycle not only to publicize what a lot of other plastic.

To create the same kind of circular economy, we did.

Paper with plastic so.

Started with a lot of negative volumes, but now we have a lot of positive discussion.

In turn out to be positive or transcontinental overall.

Okay I'll leave it there thank you very much.

Thanks.

Your next question comes from the line of drew Mcreynolds of RBC. Please go ahead.

Yes, thanks, very much a clarification or don't now just on the corporate cost guidance I just missed the number.

Adam Shine: Okay. I'll leave it there. Thank you very much.

François Olivier: Thanks.

About 23 million EBITDA, okay. Thank you.

Operator: Your next question comes from the line of Drew McReynolds of RBC. Please go ahead.

Drew McReynolds: Yeah, thanks very much. A clarification, Donald, just on the corporate cost guidance. I just missed the number.

François Olivier: About CAD 23 million, EBITDA.

Drew McReynolds: Okay. Thank you. On the long-term contracts within packaging, François, you've talked pretty regularly about what your strategy is there and how down the road it certainly adds stability to the business. Are you able to comment on, you know, which of the large long-term contracts are from new versus existing customers? Maybe provide kind of that dynamic as well as how the sales funnel is building from your perspective.

On the long term contracts within packaging, France, why you you've talked pretty regularly about what your strategy is there and how were down the road. It certainly adds stability to the business. Some are you able to comment on you know which of the large long term contracts are from new versus.

Existing customers, maybe provide kind of that dynamic as well as how the sales funnel is building from your perspective.

Yes. This quarter, we were able to secure our number two customer.

That's still at five year left to his contract, but we talked about our ER.

François Olivier: Yeah, this quarter, we were able to secure our number 2 customer that had still a 5-year left to his contract. We talked about our sustainability vision, our product offering in that vertical towards sustainability and what we were doing for the long term. This customer decided to add 5 years to his existing contracts. This is our second-largest customer, and now we have them for 10 years in a vertical that we feel could offer a lot of growth for us. That brings stability for us and stability to the customer. Then we could work on long-term project together to improve the packaging in terms of, you know, their sustainability, profitability in their plant, and shelf appeal.

Sustainability vision, our product offering in that vertical towards sustainability and what we were doing for the long term and.

And and this customer decided to.

To.

To have five years was existing contracts. This is our second largest customer and.

No we have them for 10 years of verticals that you feel is.

The offer a lot of growth for us so that brings stability for us and stability.

The customer and then we could work on long term projects together to improve the packaging in terms of.

There.

The sustainability front ability in their plan and shelf appeal so.

So we like that because to get new customers is a long sales cycles. So we've done what we've done last quarter, we secured our second largest customer for the next 10 years.

François Olivier: We like that because to get new customer is a long sales cycle. That's what we've done last quarter. We secured our second-largest customer for the next 10 years. But what I'm quite pleased about is the type of discussion we have and why they are willing to commit themselves for 10 years with Transcontinental. It's a testimony of our strategy. That is positive. Yes, we have worked in the last year on growing with new customers and some of that volume is gonna come to us in 2020. That's why we feel that next year we're gonna have organic growth, something that we didn't have this year.

What I'm quite pleased about is that type of discussion we are and why they are willing to commit to them. So for 10 years with transcontinental's, what's at the testimony of.

Of our strategies this positive and yes, we are.

Yes, we're in the last year on a.

On growing with new customers and some of that volume is going to come to us and 2020 and Thats why we feel that next year, we're going to have organic growth something that we didn't have this year, but you have to understand this year that we looked at the portfolio and discover what we buy and then some customer we're not really profitable and we have decided not to continue with.

Type of volumes, so thats why you see our volume going down.

François Olivier: You have to understand this year that we looked at the portfolio and discovered what we buy, and then some customers were not really profitable, and we have decided not to continue with that type of volume. That's why you see our volume going down this year, but our margin and our profit going up. It's a combination of letting go of low-margin business in verticals that we feel are not long-term places we wanna be, and the effect of, like Donald mentioned, of us having more synergies than what we have announced previously.

This year, but our margin and our profit going off is a combination of letting go of low margin business or in the vertical that we feel are not long term place, we want to be and the effect of a like dual no mention of us.

Having more synergies than what we have announced previously.

Okay. That's that's all very helpful.

Shifting to printing.

I guess, just depending on what Q4 kind of shakes out you may come in here and around 20% EBITDA margin.

Drew McReynolds: Okay. That's all very helpful. Shifting to printing, I guess just depending on what Q4 kind of shakes out, you may come in here in and around 20% EBITDA margin. Not asking for specific guidance, but I think in the past you've been fairly confident that you can kind of stay in that 20% plus printing EBITDA margin range. Is that still something you target or feel is realistic now that, you know, some of that higher margin Hearst numbers will be out of the equation?

Not asking for specific guidance, but I think in the past you had been fairly confident that you can kind of stay in that 20% plus printing EBITDA margin range is that still something you target or feel this is realistic.

Now that.

Some of that higher margin Hurst.

Hi numbers will be will be out of the out of the equation.

Answer is yes.

Okay great.

You know what to get more specific than that for us all.

Well.

François Olivier: Answer is yes.

Drew McReynolds: All right. You don't wanna get more specific than that, François?

You know, we we feel that a lot of the AR like right now this year, we have growth in the books segment to my surprise in the Q3, the commercial volume was up.

François Olivier: Well, you know, we feel that a lot of the like right now, this year, we have growth in the book segment. To my surprise, in the Q3, the commercial volume was up. Like I mentioned in my comments, some of the people, some of the retailer where the flyer is less central to their strategy, have already started to cut in the last two years, and they are at a level, I think, that they cannot cut a lot further. They've cut a lot, but these are people that are, you know, below our top 15 list of customers. So the impact to us is not meaningful. Those who are in the top 15 who have cut this year have certainly felt it in their business and their results.

Like I mentioned on my comments some of the people some of the retailer where are the flyer is less central to their strategy have already started to kick off in the last two years and they are at a level I think that.

You can not caught a lot of R&D caught a lot. But these are people that are below our top 15. This of customers. So the impact was meaningful and those who are in the top 15, what caused this year I've certainly felt it and their business and their results and I think.

We anticipate that next year is going to be similar to this year.

Maybe better but what I know is that we are we going to thank a lot of cost out of the platform.

François Olivier: I think we anticipate that next year is gonna be similar to this year, maybe better. What I know is that we're gonna take a lot of costs out of the platform, and that we control. I feel very confident about the costs that we have and we will take out. When I look at that, you know, all this cost is going into the margin. That's why I'm-

And that we control and I feel very confident about the costs that we have and we will take out so when I look at that you know all this cost is going into the margins. So thats why I feel that the margins are going to improve.

No.

No volume not as much a decrease in volume as I add this year and I have a cost base that is sustained.

Drew McReynolds: Mm-hmm.

François Olivier: I feel that the margin are gonna improve. If I have, you know, you know, not as much decrease of volume as I had this year, and I have-

Substantially lower than all of that translates into higher margin that's going on.

Yes.

And also maybe just to complete on that.

Drew McReynolds: Mm-hmm.

François Olivier: A cost base that is sustained, you know, substantially lower than all that translates into higher margins. That's why

Drew McReynolds: Gotcha.

François Olivier: I say yes.

Drew McReynolds: Okay.

François Olivier: Also maybe just to complete on that, you can see that quarter-over-quarter, the decrease in margin is lower. Now, obviously, it's because the impact of San Francisco is no longer there. You know, you need to take also that the paper price has an impact also on the margin. This is something that we don't control, but there's a paper price that's been increasing for the last three quarters, and that explained part of some of the margin going down. There's, you know, the deferred revenues that were not cashed and the paper. Overall-

You can see that quarters from quarter to decrease in margins lower and obviously because of the impact of San Francisco is no longer there and you need to take also that the paper price as an impact also on the margin and this is something that we don't control, but theres a paper price to be increasing order last week quarter and that explains part outsold the margin going down so there's.

Deferred revenues that were not cash and the paper so overall.

The decrease should be less in the future.

That's great last one for me within the other category I think in your opening remarks, you alluded to a double digit EBITDA growth I think in the quarter.

Drew McReynolds: Mm-hmm.

He is just given some of the moving parts in that business.

François Olivier: You know, the decrease should be less in the future.

Drew McReynolds: That's great. Last one for me. Within the other category, I think in your opening remarks, you alluded to a double-digit EBITDA growth, I think, in the quarter. Just given some of the moving parts in that business, what you're reporting this year, do you get at all to a point next year or subsequent years where you have tougher comps? Or do you see the growth in that segment as, you know, somewhat of a normalized or sustainable base to grow from going forward?

What you're reporting this year.

You do get at all to a point next year subsequent years, where you have tougher comps or do you see the growth in that segment is somewhat of a normalized or sustainable base to grow from going forward.

Yes, we have two business and then in the media, which is about a $100 million of revenue.

Uh huh.

In terms of it is.

Im seeing school textbook.

We are clearly the market leader in this space.

François Olivier: Yeah. We have two businesses in the media, which is about CAD 100 million of revenue. About two-thirds of it is producing school textbooks. We are clearly the market leader in this space. We have the ability to do tuck-in acquisitions, which we did this year. Our team has been able over the years to take market share and to do small tuck-in acquisitions, and they've been steadily improving their profitability. We believe that this is still going forward for the next two, three years. We believe that this strategy is still. We could still continue to follow that strategy. In terms of the other third of the business, which is based on advertising, to my great surprise, these are specialty products, but this year is a fantastic year.

We have the ability to do tuck in acquisition, which we did this year.

And our team has been able over the years.

To take market share and to do small tuck in acquisition and we've been steadily improving their profitability and we believe that this is still.

Going forward for the next two three years, we believe that this strategy.

It's still.

We can still continue to follow that strategy.

In terms of the other third of the business, which is based on advertising.

To my Great surprise. These are specialty products, but this year is a fantastic year, we've grown in the advertising both digitally and in paper and the division as a.

Fantastic results. So media is is over performing.

François Olivier: We've grown in advertising, both digitally and in paper, and this division has fantastic results. Media is overperforming our plan and overperforming last year, but unfortunately, it's only CAD 100 million of CAD 3 billion of revenue. They are having a fantastic year. It's harder to predict advertising going forward.

Our plan is over performing last year, but unfortunately is only 100 million of $3 billion of revenue but.

Yes, they're having stickier.

I am less.

It's harder to predict.

Advertising going forward.

But I feel pretty good about our educational business for the next three years.

Okay perfect. Thank you for.

I mean, it was immaterial and <unk> with Xavi Deca sound system out there that you see would give a piece on the twoq. It why did yeah.

Drew McReynolds: Mm-hmm.

François Olivier: I feel pretty good about our educational business for the next three years.

So we should see this xenapp on Shomi deep Utica. She does this upturn novanta peacefully two ish.

Drew McReynolds: That's perfect. Thank you, François.

Ladies and gentlemen, if there is any additional questions at this time. Please press star followed by one.

As a reminder, if you are using a speaker phone please lift the handset before pressing the keys.

Your next question will come from the line of David and Ken.

Operator: 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 the keys. Your next question will come from the line of David McFadden of Cormark Securities. Please go ahead.

Operator: [Foreign language]. 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 the keys. Your next question will come from the line of David McFadden of Cormark Securities. Please go ahead.

Cormark Securities. Please go ahead.

Hi, I was wondering if I can start off with a couple of questions on clearance.

So given the packaging revenue was down about 3% in the quarter and given the relative size of covariance to the overall packaging business is it safe to assume that because their strategy is also down around 3% in the quarter.

David McFadden: Oh, hi. I was wondering if I could start off with a couple of questions on Coveris. Given the packaging revenue was down about 3% in the quarter and given the relative size of Coveris to the overall packaging business, is it safe to assume that Coveris revenue is also down around 3% in the quarter?

Actually.

I think over us was or was not down 3% I think is more the legacy DC business.

More or down.

I know you can take that off line with doing all we can share that with you.

François Olivier: Actually, I think Coveris was not down 3%. I think it's more the legacy TC business that is more down. You know, you could take that offline with Donald. He could share that with you. My comment is from my recollection, because now we tend to treat the business as one business. We tend not to look back because all these plants are mixed now per group. I look at it for vertical, and they're all mixed. I would say in the same zone, but maybe Coveris is a little bit better.

My comment is from my recollection, because now we tend to treat the business as one business, we tend not to look at FX, because all these plants or mix.

Groups.

I look at it for vertical in their own mix.

I would say in the same same zone, but maybe core risk is a little bit better.

Congress was about 1% down so it's more on the legacy business that we suffer more.

Okay and.

In the past you disclose the covariance EBITDA margin.

You can see that for this quarter.

Well, our kids and.

Donald LeCavalier: Yeah. Coveris was about 1% down.

Donald LeCavalier: Yes.

David McFadden: Yes.

Donald LeCavalier: It's more on the legacy business that we suffer more.

I can give you a treat I will give it to you for the last time, because we're we're not.

David McFadden: Okay. In the past, you've disclosed the Coveris EBITDA margin. Would you be able to do that for this quarter?

Corporate risk activities were 38% this quarter.

I'm, sorry can you repeat that 13.8.

Yes.

François Olivier: Well, I can give you a treat. I will give it to you for the last time because the Coveris activities were 13.8% this quarter.

Okay. That's that's quite good now.

David McFadden: I'm sorry, can you repeat that? 13.8?

François Olivier: Yes.

David McFadden: Okay. That's quite good, no?

Well it started at 7.9 last year and I was at 13.8 schools and 2% over the last six border in every single quarter. It moved from 11.9, Wellpoint 112 points to 12.8 13.8.

Okay.

François Olivier: Well, it started at 11.9 last year, and now it's at 13.8, so it's a 2% improvement over the last six quarters. Every single quarter, it moved from 11.9, 12.1, 12.2, 12.8, 13.8.

The more we will go now you know we operate this as one business. So theres job that you know that we do in that we used to do another plan. So.

David McFadden: Okay.

It's a strong as I mentioned I think the last time, we will go into details because it's not apples to apples because we will put the job that the best plan.

François Olivier: more will we go now, you know, we operate this as one business, so there are jobs that, you know, that we do and that we used to do in other plants. It's as François mentioned, I think the last time we will go into that detail because it's not apples to apples because we will put the jobs in the best plant in the future, whatever it is Coveris or legacy business. It's one business for us now.

In the future or whatever it's called Ssris or legacy business as one business for us now.

Okay.

And then just a comment on the outlook for the fourth quarter, you said that.

The decline in the overall packaging business, probably be a little higher than Q3 and just wondering.

If we could get a little detail on that and see whether it be like something in the order of 4%.

David McFadden: Okay. To comment on the outlook for Q4. You know, you said that the decline in the overall packaging business will probably be a little higher than Q3. I was just wondering if we could get a little detail on that. Say, would it be like something in the order of 4%?

Well it is the same thing you know like.

It's the same.

And Pat and all is.

Some business.

We are aware of and the benefit segment and that's the.

François Olivier: Well, I think it's the same thing, you know, like, it's some business that we're aware of in the pet food segment, and it's the impact of the legislation in Europe and Canada. What is it gonna turn out to be? I don't wanna comment, but now we were -3.8. Obviously, it'll be more, but how much? You know, we feel better about our profitability and our ability to have better margin than we had in Q4 last year. We're not gonna give guidance on quarter for quarter, especially not in that business. We're giving you direction, and we're gonna leave it there.

The installation and European Banana, what is it going to turn out to be a I don't want to comment now we were minus 3.8.

It will be more but not much.

We feel on that front as you know, we feel better about our profitability.

And our ability to have better margins that we had in Q4 last year and.

Give guidance quarter over quarter, especially not in that business, we're giving you direction.

Are we going to leave it there.

And as I said in my remarks.

To start with.

Q4 last year was very strong you remember so the comparable with his thoughts on the elements in Q3 will be the same in Q4 and there is it might be even higher the impact so it's all that to get to that.

Donald LeCavalier: As I said in my remarks, to start with, Q4 last year was very strong. You remember. The comparable was, is tough, and the elements in Q3 will be the same in Q4, and the resin might be even higher, the impact. It's all that together that.

Resin prices going down.

Our sales going down.

Okay.

Pass through.

Right.

Okay, and then and then just on the salary and Remy and depreciation from the sale of the Fremont plan descendants can either 10 million.

François Olivier: Resin price is going down, so our sales is going down.

Is that.

David McFadden: Okay.

I'm just wondering what the EBITDA impact is and I guess, you'll probably.

François Olivier: Just pass through.

David McFadden: Right. Okay. Then, Donald, just on the accelerated revenue and depreciation from the sale of the Fremont plant. You said it's gonna be about CAD 10 million. Is that? I'm just wondering what the EBITDA's impact is, and I guess you'll probably separate those out to get the, sort of, you know, a clean number, the adjusted number.

Separate those and to get the.

Sort of.

Clean number the adjusted there it will be it will be what I call I don't know if the new the u. turns but it's below the line and the old Comping waste. So it's going to be below the line in Q4, and it's the remaining of the U.S deferred revenues that.

That we had to to account when we received.

Donald LeCavalier: Yeah, it will be what I call. I don't know if the new term, but it's below the line in the old accounting way. It's gonna be below the line in Q4, and it's the remaining unused deferred revenues that we had to account for when we received, you know, the CAD 200-something million.

The 202 hundred and something below $100 million at the time.

Most of it was reversed when we will get sold back to contract to hers, but since we were Steve.

François Olivier: Million.

Donald LeCavalier: dollars at the time. Most of it was reversed when we, you know, sold back the contract to Hearst. But since we were staying owners of the building, we had, and again, it's accounting rule that we might go, you know, online together on that, but we had to keep a part of it, depreciate over the value of the term of the rent that we have with them. This is why we need to reverse it now. It's 15, it's about 13-

Owners of the building, we out and again its accounting rule that we might go online to get on that but we had to keep part of it depreciate over the value of the term of the rent that we have with them. So this is why we need to reverse it now. So it's 50 13 20 million Canadian 10 US $13 million of revenue additional 13 million of EBITDA additional.

Your problems just accounting just like we receive that money in 2014.

Yes below the line.

Okay just to clarify the report we have.

François Olivier: CAD 13 million, $10 million. It'll be CAD 13 million of revenue additional, CAD 13 million of EBITDA additional. It's pure profit. It's just accounting. It's just like we received that money in 2014.

As I mentioned the $3 million tradition was there last year. So we're starting with minus three regarding that in the year and the adjusted numbers.

Right Okay.

David McFadden: Yeah.

Donald LeCavalier: Below the line.

Okay. That's it for me thank you.

David McFadden: Yeah. Okay. Just to clarify.

Thank you David and good.

Donald LeCavalier: Q4, we have, as I mentioned, the CAD 3 million transition was there last year. We're starting with CAD -3 million regarding that in the adjusted numbers.

And assumptions about because so that's sort of the point there are no further questions. At this time. Please continue.

David McFadden: Right. Okay. Okay. That's it for me. Thank you.

Thank you Gabriel then thanks to everyone for joining us on the call and we look forward to speaking to you.

François Olivier: Thank you, David.

Donald LeCavalier: Thank you, David.

Operator: [Foreign language]. Mr. Lapointe there are no further question at this time. Please continue.

Yan Lapointe: All right, thank you, Gabriel and thanks to everyone for joining us on this call we look forward to speaking to you.

MME, let me answer your system independent coffeehouse bushel now see defense spending.

Operator: Ladies and gentlemen, this concludes conference call for today. Thank you for participating. Please disconnect your lines.

Operator: [Foreign language]. Ladies and gentlemen, this concludes conference call for today. Thank you for participating. Please disconnect your lines.

I mean, it sounds like Cushing, ladies and gentlemen, This concludes conference call for today. Thank you for participating please disconnect your lines.

Mm Hmm.

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