Operator: Welcome to the TC Transcontinental Fourth Quarter and Fiscal Year 2024 Results Conference Call. During the presentation, all participants are in a listen-only mode. Afterwards, we will conduct a question-and-answer session, and instructions will be provided at that time. As a reminder, this conference is being recorded today, December 12, 2024. I would like to turn the conference over to Yan Lapointe, Director of Investor Relations and Treasury.

Mr. Lapointe, please go ahead.

Yan Lapointe: Thank you, Sylvie, and good morning, everyone on the call. Welcome to Transcontinental's fourth quarter and fiscal 2024 earnings call. Before we begin, please note that our quarterly report, including financial statements and related notes as well as the slides supporting management's remarks are all available on our website at www.tc.tc under the Investor Relations section.

A replay of this conference call will also be available on our website, shortly after the call. Please note that, this conference call is intended for the financial community. Media are in listen-only mode and should contact Nathalie St-Jean, Senior Adviser, Corporate Communications, for more information. We have with us today our President and Chief Executive Officer, Thomas Morin; and our Executive Vice President and Chief Financial Officer, Donald LeCavalier. As referenced on Slide 2, some of the financial measures discussed over the course of this conference call are non-IFRS.

You can refer to the MD&A for a complete definition and a reconciliation of these measures to IFRS. In addition, this conference call might also contain forward-looking statements. These statements are based on the current expectations of management and information available as of today, and they involve numerous risks and uncertainties, known and unknown. The risks, uncertainties and other factors that could influence actual results are described in the fiscal 2024 annual MD&A released yesterday and in the annual information form. With that, I would like to turn the call over to our President and CEO, Thomas Morin.

Thomas Morin: Thank you, Yan, and good morning to you all. We posted solid results in Q4, and I thank our teams for their disciplined work in reducing costs and improving profitability. We are pleased to end the fiscal year on a strong note. In our packaging sector, despite continued weakness in our medical market, we improved profits again, mainly as a result of cost reductions. For the '24 financial year, our adjusted EBITDA was up 14.2% over the previous year.

At $262 million, this is a record for our packaging sector. In our Retail Services & Printing sector, we recorded an increase in profit for the second consecutive quarter. This is the result of our actions to improve our cost structure as well as our growth in our in-store marketing activities. For fiscal 2024, our adjusted EBITDA was up 2.1% over the previous year, another welcome achievement. In terms of sustainability, the Science Based Targets Initiative Organization, or SBTI, approved their near-term emission targets in October.

From now on, these targets will serve as our primary measurement for sustainability objective. These include energy efficiency, clean energy procurement and the commercialization of sustainable packaging solutions. As an update on recyclable packaging and our new BOPE line in Starnberg, South Carolina, the startup has gone very well, and we're very pleased with where we stand as we speak. '24 was also a year of progress on safety. By reducing the number of accidents by 9% compared with the previous year, we've reached a new milestone.

We improved our frequency rate to a symbolic 1.0. This is an industry measure based on one accident per 200,000 work hours. The efforts of our teams are paying off, and we will continue along this path to get closer to our zero-injury vision. To sum up, we delivered a solid financial performance in '24. This was made possible by our discipline in implementing our priorities as well as our three-year program to improve our profitability and financial position.

By the end of this '24 fiscal year, we generated over $30 million of our two years target of $40 million in recurring savings. This was achieved through the reduction of cost of goods sold, fixed cost reductions and the turnaround of underperforming plants. Just after the end of Q4, on October 28, we've announced an important transaction for our Packaging sector, the sale of our Industrial Packaging operations for $95 million, subject to working capital adjustment. Industrial Packaging was a good business for us. However, it offered few synergies with the rest of our portfolio and was not core to our growth.

Let me now address the strike at Canada Post. First, I'm extremely proud of how we have responded to this situation. Our teams have come together to meet the challenge with truly amazing work. We were ready for disruption and have enlisted logistic partners to quickly deploy a distribution network for radar in Quebec and British Columbia. We're currently distributing over 1.1 million copies of radar and 100,000 doors in Quebec and 320,000 doors in British Columbia.

Individual flyer distribution also continues in Ontario and other provinces through existing channels. All-in-all, approximately 70% of Canadian doors that were receiving radar or solo flyers before the strike are still receiving them. While the consultation of digital flyers is up, many retailers are seeing a decrease in store traffic in those areas, where printed flyers are not available. Again, this points out the value of printed flyer in combination with digital. Our customers have expressed appreciation for the way we are supporting them, praising our agility, so kudos to the team.

While we cannot predict how long the strike will last, we're doing everything we can to mitigate the impact of the situation. Looking forward to fiscal '25, we will continue to implement year two of our profit improvement program with the same spirit of leaving no stones unturned with the same determination. Additionally, with our improved financial position, we're looking again at acquisition markets in all three sectors to complement our offering, our footprint and our capacity. Now over to you, Donald.

Donald LeCavalier: Thank you, Thomas, and good morning, everyone.

Moving to Slide 5 of the earnings call's presentation. For the fourth quarter, we reported revenues of $749.3 million, a 3.9% decrease versus last year. This decline was caused by lower volume in our two main sectors, partially offset by positive exchange rate impact. Regarding profitability, we delivered a strong quarter with consolidated adjusted EBITDA of $142.2 million. While adjusted EBITDA was slightly lower than last year, due to incentive compensation expenses, including stock-based compensation, adjusted EBITDA grew in our two main sectors.

Financial expense decreased by $2.2 million, mainly due to a lower debt level, following strong cash flow generation in the last 12 months. Adjusted income tax increased by $4.2 million to $21.6 million and represented an effective rate of 24.3%. This led to adjusted earnings per share of $0.79, compared to $0.83 for the same quarter last year. On a full year basis, despite a $7.3 million impact on our stock-based compensation following our share price performance, we grew adjusted EBITDA by 5.1% to $469.4 million. This increase was mainly due to our cost reductions and efficiency initiatives related to profitability improvement program, and also benefited from a positive exchange rate impact of $2.3 million.

Combined, with lower depreciation and amortization and lower financial expenses, it led to a fiscal year 2024 adjusted earnings per share of $2.34, a 15.3% increase from fiscal 2023. Now moving to Slide 6 for the sector review. In Packaging, for the fourth quarter, we generated revenue of $415.7 million, a 1.2% decrease compared to last year. The decrease is mainly due to lower volume, notably in the medical market, where we continue to see some weakness. In terms of profitability, adjusted EBITDA in Packaging grew by 6.5% to $65.7 million, a fourth consecutive quarter of year-over-year profit growth.

This solid performance led to a 15.8% EBITDA margin, a 110-basis point improvement versus last year. This concludes a very strong year for the sector with adjusted EBITDA of $262.2 million a record year for the sector and a 14.2% improvement compared to fiscal 2023. It's important to note that, we delivered a strong profitability without any benefit from top-line growth. We clearly see the impacts from our profit improvement program on our bottom-line this fiscal year, and we will continue to push forward with more initiative in 2025. Moving to the Retail Services & Printing sector on Slide 7.

Revenues decreased by 7.4% to $288.3 million. This was mainly due to lower volume in our traditional printing activities, including the transition to Radar. Adjusted EBITDA grew by 4.1% to $63.6 million. This is the second consecutive quarter of profitability improvement for the sector and supported a full year adjusted EBITDA of $201 million, a $4.1 million improvement versus fiscal 2023. This improvement came in large part from a combination of our cost reduction initiatives, the optimization of our manufacturing network, the favorable effect of the rollout of Radar and growth in our store in store marketing activities.

For fiscal 2024, adjusted EBITDA margins grew 200 basis points to 18.8%, reflecting EBITDA growth from cost reductions and our efforts to improve our product mix towards higher value products and services. Now turning to cash flow. As expected and in line with this normal seasonality, Q4 2024 was a strong quarter. We generated $185 million from operating activities compared to $246.2 million in the previous year, following the strong working capital benefit in Q4 last year from inventory improvement, and the implementation of a new factoring program. Our CapEx at $24.2 million were $4.8 million lower than last year, to bring us to a full year total of $121.5 million, a $56 million reduction in line with our priorities as we get closer to our normalized run rate.

Despite allocating $4.6 million in shares buyback in the quarter, we continue to improve our net debt ratio to reach 1.71 times at the end of the fiscal quarter, compared to 1.91 times three months ago. Looking forward, with the proceeds from the sale of our Industrial Packaging activities that closed on October 28th, the strong cash flows from our operating activities, we expect this ratio to continue to improve in fiscal 2025. Overall, we are very pleased with our results in fiscal year 2024, especially as it related to our profit improvement program and cash generation. As we continue to improve our cost base, we are confident in our outlook. For fiscal 2025, in our Packaging sector, we expect to see volume growth, as we are now seeing improvement in demand in most of our end markets and signs of stabilization in the medical market.

However, we expect this volume growth to be offset by pricing pressures. In terms of profitability, we expect to grow organically the adjusted EBITDA again in fiscal 2025. In our Retail Services & Printing sector, including the impact of the labor conflict at Canada Post, we expect to deliver a stable adjusted EBITDA in fiscal 2025, compared to 2024. Regarding the impact of the labor conflict, it will depend on how long it will last. To date, we estimate a profit impact of about $7 million, as we experiencing a loss of volume related to radar and additional costs for establishing alternate distribution networks in sub-regions in Quebec.

At the same time, some customers are saving their promotional programs budget for later, once the strike is over. We expect corporate costs at EBITDA level to be around $45 million for the year. In terms of capital allocation, we expect CapEx about $120 million in fiscal year 2025, in line with fiscal 2024. We also plan to continue being active on our share buyback program. As for cash taxes, it should be around $75 million in fiscal year 2025, of which $25 million is related to the sales of our industrial business.

Finally, in terms of our monetization of real estate, we expect to close the sale of two buildings in fiscal 2025 that will bring us close to our initial objective of $100 million over two years. On that note, we will now proceed with the question period.

Operator: [Operator Instructions]. Your first question is from Adam Shine, National Bank Financial.

Adam Shine: Thanks a lot.

Good morning. Thomas, can you talk a little bit about what you're seeing out there in the packaging marketplace? We're seeing a lot of consolidation activity, maybe speak to opportunities for you to pick up either key talent out there and/or even potential customers? And at the same time, when talking about M&A opportunities going forward, particularly with a stronger balance sheet, talk about what maybe the M&A pipeline might look like? Thanks.

Thomas Morin: Yes. Thank you, Adam, and good morning. Yes, there is and there was a lot of announcement in the last few weeks on movements on this packaging market with the acquisition we've seen.

I'd say two things on this one. First, it doesn't change much our go-to-market strategy, as we speak. It's always been a combination of being close to customers, agile, cost efficient, speed agility would be the one thing. So, the fact that we see a consolidation actually reinforces this strategy as we speak. Now when it comes to opportunities of hiring talents, of course, there was some clear enhancements on the synergies expected in SG&A from those acquisitions.

And we're very much alert and look at who could be the right talents for us, when it comes to seizing these opportunities. Now the second part of your question is on the opportunities this would create from an M&A standpoint, I think this creates a lot of opportunities. There is a lot of movements. There is a lot of competitors and converters looking at what to do as we speak. We obviously are very alert as well on this.

And we will see the opportunities when they come. It has to remain, as I could tell you a few times already, it has to remain in line with our strategy. For us, the growth and the scale is not any longer what we're looking for. What we're looking for is becoming even stronger in those segments we play in. That's also why we actually sold the Industrial segment because this is something we consider as nonstrategic for us.

So, to summarize up, we look at what can be as an opportunity in terms of reinforcing our current value proposition.

Adam Shine: But we think about the $20 million to $40 million cost cutting target that obviously you've hit the $30 million mark, as you telegraphed a couple of quarters ago. Do you see opportunity just in terms of momentum to potentially get beyond that $40 million? I know I'm pushing you a little bit harder here, but do you believe that momentum has evolved such that there is additional lines of sight to go beyond that initial target that you put out a year ago?

Thomas Morin: Yes. Thank you for stressing this. First, I will reinforce my message.

Very proud of the way the team has deployed energy and stayed focused in delivering these savings. I think I touched on that in my speech. We obviously continue to work on this. Donald, you said it too. First, there is a run rate, so we need to continue benefit from this ramp up.

Second, we'll have two of them. It's part of our DNA. It's the way we work in TC Transcontinental. We'll have to stay competitive, cost competitive, and that's the way to be competitive. In the changing environment you described, we'll have to.

The answer is, yes.

Operator: Next question will be from Maher Yaghi of Scotiabank. Please go ahead.

Maher Yaghi: Great. I just wanted to first talk about the strike and its impact.

You detailed in the note and in your prepared remarks the potential downside from the strike so far up to December 11th. I was trying maybe if you can just give us the numbers on revenue and EBITDA separately, and if you can also quantify the impact on a per week basis. I was just trying to figure out, what's included in -- up to December 11th because I think the 1st week of the strike, you still got paid because you printed the flyers, but then the second week and third week, you did not. So, I was just trying if you can just clarify a little bit these things for us. Thank you.

Donald LeCavalier: This is Donald speaking. We'll get back to you off line regarding revenues, because this is something that we didn't close yet the month. So, but what we know for sure is what we said is that we have, as of today, an impact of around $7 million of EBITDA impact. Part of it is, yes, it's all in first quarter. The first few weeks were harder on total impact because obviously we had to adjust.

We print jobs that we didn't distribute. I would say that, right now, if you had to establish a run rate per week, it will be a little bit north of $1 million per week, the impact.

Maher Yaghi: $1 million a week, okay, on EBITDA. That's good color. Thank you, Donald.

Okay. And then, more a bigger question as a long-term tail from the strike. Now habits form -- habits can be taken lost. And so, what's your thinking about if the strike is prolonged? Do your customers are starting to think about finding other ways to send their flyers? And if so, how do you see that behavior change potentially affecting radar long-term?

Thomas Morin: Well, that's Thomas now. Two things again to say on this one.

First, I think the team has reacted extremely well to support the model itself. As we could say, 70%, seven-zero percent of the flyers are kept on being distributed to the Canadian doors, as we speak. So, this is in support to the model you're referring to, and we got a lot of great comments and positive comments from customers. The second thing I would say is customers and they've been very vocal about this issue. Look at what the RCC, the Retail Council of Canada has been publishing.

The customers are extremely unhappy with what happens, and they really want to just strike to an end, as we could, as we can imagine, because they could notice that this had an impact on their sales in the last few weeks. So, we expect the model and we've seen the model delivering results. I mean, the numbers are showing it. It's too early to say -- to answer your question, too early to say whether this will change the habits. I think we can take this question in a few weeks, if it continues.

But so, for the moment, the customer is super supportive. The team has been responding extremely well and 70% of the doors are still being delivered.

Maher Yaghi: Okay, great. Thank you. And just more on the Packaging side, good color from you guys.

And in terms of the volume growth, it's nice to see. On the tariffs, can you maybe clarify a little bit for us, and again, this is a hypothetical question, as everybody is thinking about tariffs, how tariffs, if they were to be implemented by the new U.S. administration? How that can affect both volumes, how you operate the business and its impact on your financial results?

Donald LeCavalier: Yes. I'll take this one as well. So, first, let's be factual.

So, our cross-border exposure is pretty limited. We're talking about in the region of shy of 10% of our sales, and I include in this both packaging and Retail Services & Printing. So, it's about shies of 10% of what we do. Now we can debate on whether these tariffs will happen or not. I think, this is not where we should spend time.

The one thing, we're looking at is, how can -- how could we find workarounds. And as you know, we have a pretty significant footprint in the United States. It's the majority of what we do in Packaging. And we can leverage this footprint pretty quickly. I would say, we're talking about months, not years.

So, to me to quickly answer your question, it's a rather limited exposure should tariffs happen.

Maher Yaghi: Okay, great. Thank you. Finally. Finally, just on your buyback.

Now with the stock, stock has done nice performance lately. What's your thinking? Have you updated your view on the share buyback, given the strength you're seeing in the stock, or you still see it as undervalued and we should expect you to continue buying back your stock going forward at these levels, at least?

Thomas Morin: As I said in my opening remarks, we plan to be active. I think the position we have on the balance sheet allows us to keep supporting the stock, being proactive on acquisition, if it happens in front of us. So, we plan to be active in the market, when we're out of the backup.

Maher Yaghi: Sorry, the back half of the year or out of the blackout period? I did not hear you properly, sorry.

Thomas Morin: Yes. No, sorry, to be clear, we're in a blackout until tomorrow, but we've been active even during the blackout period and we plan to be to continue to be active in the coming days.

Maher Yaghi: Okay. Thank you, very much.

Operator: Your next question will be from Stephen MacLeod at BMO Capital Markets.

Please go ahead.

Stephen MacLeod: Thank you. Good morning, guys. Thanks for all the color so far. Just a couple of questions, I wanted to follow-up on.

The first one is, in the Packaging business, can you talk a little bit about kind of what you're seeing on volumes outside of medical, sort of what you saw in Q4 and sort of how you're seeing that evolving as you turn the page into fiscal 2025?

Thomas Morin: It's slightly positive, as we speak. The beginning of the year is promising volume wise. And I would add on Medical, we clearly saw a stabilization in the last few couple of months, few weeks.

Stephen MacLeod: Okay. That's great.

And are there any areas that are notably driving the slightly positive growth that you're seeing on a year-to-date basis -- fiscal year-to-date basis?

Thomas Morin: We are very focused in terms of packaging segments we play in. I wouldn't say that; the segments are driving the growth. I'd say, our value proposition is driving the growth. My quick and simple, it's across the Board.

Stephen MacLeod: Yes.

Okay. That's great. And then you seem to talk quite positively around the potential for acquisitions, given the balance sheet and obviously the inflows from the sale of the Industrial Packaging business. So, I'm just curious, if you could give a little bit color around kind of how you would view your preferred end markets on acquisitions? I mean, are we right to believe that you'd sort of focus on packaging and the Retail Services & Printing business would be secondary to that? But just wondering if you can give any incremental color?

Thomas Morin: I'd say again, two things on this one. First, we've invested a lot of CapEx in the last three years, I would say, in Packaging in terms of capacity and technology.

So, the priority for packaging as we speak is to leverage on those investments, which have been important and large, so that we can grow and we can grow in those dedicated segments we talked about. So actually, the first moves we may do would be maybe more on the other side, on the Retail Services & Printing, since we have capacity and technology to leverage on the Packaging side. Okay, that's great. And then maybe just finally, if you did find an acquisition that you thought was compelling, would you be willing to use the balance sheet to fund that acquisition? And, if so, is there a sort of a comfort level or a target level around net debt to EBITDA that we should be thinking about, or would you be -- would the preference be to use your free cash flow to fund any potential acquisitions going forward?

Thomas Morin: If you look at, we will deliver obviously a strong free cash flow in 2025 now that the CapEx program is more normal, if I can say that, that way. So, it depends on the dollar of acquisition, but for sure the free cash flow will deliver to us in 2025.

If you pro forma right now where we are post Q4 with the impact of the sale of the initial business, we're in good shape, I would say. So, the bottom-line is that, we definitely have a strong balance sheet to be proactive, but it doesn't mean that, we will be proactive. We wanted to be in that position and we still want to grow the EBITDA. That's part of our priorities either by acquisition or organic growth.

Operator: The next question will be from David McFadgen at Cormark Securities.

Please go ahead.

David McFadgen: Great. Thank you. A couple of questions. So, you said that you expect corporate costs to be $44 million in fiscal '25.

Can you give us the comparable number, what it was in fiscal '24?

Thomas Morin: For 2025, just give me a second. I'll give you that.

David McFadgen: No. What was it for fiscal '24?

Thomas Morin: 2024 was $44 million.

David McFadgen: It was $44 million.

Okay, sorry, I misunderstood you. Okay, yes. And your expectation for '25?

Thomas Morin: Same zone.

David McFadgen: Same zone? Okay. All right.

Despite the higher stock comp that you incurred in '24, you still expect it's going to be about the same in '25?

Thomas Morin: Yes. What's important to understand, we don't do any forecast regarding where the share price will be in 2025. So, if you model, you should take if you your own view on the share price. So that's not part of the number we disclosed for 2025.

David McFadgen: Okay.

So, when I look at the working capital, you pulled out $34 million in fiscal '24, $111 million in fiscal '23. So, should we assume that, you've pulled out what you can and now the business is just kind of going to kind of be stable from a working capital point of view going forward?

Thomas Morin: I think you can modelize stable, because what happened also, we have a different mix growing in the business that does have impact on the working cap. But for model purpose, yes, that will be the right approach. Obviously, we'll try to do better, but stable should be the numbers.

David McFadgen: Okay.

So, you're expecting a pickup in volume on packaging in fiscal '25 because fiscal '24 volumes were down. So just wondering, what gives you the confidence to say that you think volumes are going to be higher in '25 and what's really driving that? And what did the dairy volumes do in packaging in fiscal '24?

Thomas Morin: So specifically, to dairy that was your question?

David McFadgen: Yes. I mean, I'm just curious because obviously you're the second largest dairy packager in the U.S, I believe. And then I was just wondering, yes, what how did that perform in '24? And then what gives you the confidence for '25?

Thomas Morin: Right. So, two things.

I think it's a combination of customers' demand picking up. The impact on demand has been pretty hard given the inflation rates we saw in the last couple of years. So, this is starting to normalize. So, customers are more positive about their end consumer demand, first thing. And second thing is obviously the investments we've made and the relationship we've grown with our customers helps us gain share of wallet.

So that's really what drives the growth.

Operator: [Operator Instructions]. Your next question will be from Drew McReynolds at RBC. Please go ahead.

Drew McReynolds: Yes.

Thanks very much. Good morning. Two for me. Thomas, just on the overall packaging markets, I missed all your commentary on volume and market demand. On the pricing side, you've made the comment all the investment that you've made in the business that drives the value proposition.

Is that a -- are you able to kind of shield yourselves from some of that kind of more commoditized pricing pressure within the market? And then secondly, maybe for you, Donald, just could you remind us the EBITDA impact when you sold Industrial Packaging? Thank you.

Thomas Morin: Yes. Thank you for the question. Demand goes up. There is a bit more volume available.

This has an impact obviously on pricing as a mechanic. The quick and simple answer. Now from a protection to pricing pressure, we have contracts. About 70% of our volumes, I think it's north of 70% of our volumes are protected, if you will, or under contract with which we have commodity or raw material pass-through clauses both ways. So that's why we feel reasonably confident in the way we can anticipate, but also protect ourselves from a margin standpoint.

Donald LeCavalier: And for the Industrial and our 2024 numbers, it's north a little bit north of 10 U.S.

Operator: There are no further questions at this time.

Thomas Morin: Thank you, everyone, for joining us on the call today, and we look forward to speaking to you soon.

Operator: Ladies and gentlemen, this concludes the conference call for today. Thank you for participating.

Please disconnect your lines.