Still fit to print money
Transcontinental shares up 9%
As chief executive of Canadian printing giant Transcontinental Inc., François Olivier is well aware of what most people think about the sector’s future.
“It is not a very popular industry,” he said. “Most of the time when people write about our industry, it’s to announce the date of its future death.”
The many people who share that view might be surprised by Transcontinental’s recent stock performance. The Montreal-based company’s shares have rallied 9.3% over the last year, despite the fact the Canadian print industry’s revenues have shrunk by about 2.4% a year for the past five years, according to research from IBISWorld.
While others were planning the print industry’s funeral, Mr. Olivier has been selling some assets and buying others to adapt to increased competition from digital media. Transcontinental has sold its national magazines and reduced its reliance on book printing, while buying local Quebec weekly newspapers and diversifying into flexible packaging.
The print industry has suffered deep cuts and job losses as readership and advertising revenues have declined steadily. However, Mr. Olivier said it’s important to remember that investing for future growth is just as important as cutting costs.
“You have to have the guts to invest the money,” Mr. Olivier said. “This is how we’ve been able to perform very, very well and improve profitability year over year for the last five years. Even though it is not a very popular industry.”
Transcontinental is the fourth largest printer in North America and commands 14.7% of the Canadian market share, making it the dominant player by far. Because it’s so big, IBISWorld analyst Omar Khedr said Transcontinental has actually been able to benefit from the industry’s decline in some ways.
“The small players who can’t sustain themselves… they’re just going to have to shut down,” Mr. Khedr said. “And that revenue is going to go to the bigger players like Transcontinental.”
Aravinda Galappatthige, an analyst with Canaccord Genuity Corp, said the print industry has certainly declined, but has not been wiped out by digital media as many predicted. Additionally, the decline is uneven, with Transcontinental’s flyer and coupon printing business remaining relatively stable, he said.
Mr. Galappatthige said investors have rewarded Transcontinental for paying down debt, cutting costs and making smart acquisitions. In particular, Transcontinental’s acquisition of the U.S. flexible packaging firm Capri last year diversifies the company’s revenue and adds growth potential, he said.
However, Mr. Galappatthige said the outlook for the industry and the company remains uncertain. “I’m not really that optimistic about it going forward,” Mr. Galappatthige said. “There are so many things that can crack.”
Mr. Olivier said it’s impossible to predict how technological changes will affect business, but sometimes it’s possible to make an educated guess. For example, he said Transcontinental drastically reduced its book publishing business in response to the rise of e-books and tablets.
Yellow Pages directory owner Yellow Media Ltd. has also seen success in spite of the print industry’s decline by shifting its focus to digital revenue. Mr. Olivier said Transcontinental has been working to increase digital advertising revenue from its weekly newspapers’ websites and improve its selection of digital textbooks, but remains focused on the business of putting ink on paper, at least for now.
“Whatever is going to need to be printed in Canada, we will print that,” Mr. Olivier said. “In order to ensure we will be the ones printing that, we need to continue working on the same formula — being innovative, investing, bringing efficiencies.”