IV. Promising developments
in the United States
Now I’ll talk about our international
operations. The United States is our priority
market. Currently it accounts for more than 25%
of our revenues: half of that is exports from
our plants in Canada, mainly books, catalogues
and magazines, and the other half is produced
in the U.S., mainly direct marketing products
and services. To keep growing, we have to increase
our presence in the United States. And the conditions
are now right for us to do so.
With our facilities in Pennsylvania,
California and Texas we are one of the biggest
suppliers of integrated direct marketing services
in the United States and the leading supplier
to financial institutions, a large segment with
strong growth.
In 2006, we completed the reorganization
and modernization of our Pennsylvania operations.
This involved consolidating four plants into one
in Warminster and finalizing the plan to integrate
JDM, a firm acquired in 2005. With an area of
350,000 square feet, Warminster is now one of
the largest plants in the direct marketing industry
in the United States. Its module-based operation
gives it exceptional production workflow with
very condensed times for the whole process, from
order-taking to delivery. I’d like to mention
the extraordinary work done by Rob Young, Chris
Carosella and their team, who carried out this
reorganization within a very short period of time.
My thanks also to Alon Stephens for his excellent
work as the person responsible for our Dallas-Fort
Worth and Los Angeles plants.
In short, we now have the business
model and team to strengthen our position in the
direct marketing industry in the U.S. through
both organic growth and acquisitions.
What we are today in direct marketing,
we are going to become in newspaper printing,
where we have a significant competitive edge:
our unique outsourcing model.
We took a major step last November
when we announced that we’d signed a 15-year
contract, valued at one billion U.S. dollars,
with Hearst Corporation to print the San Francisco
Chronicle and its related products. Unlike
agreements signed with Canadian newspaper publishers,
this contract excludes paper. This means that
on a comparable basis it would be worth about
two billion U.S. dollars over the 15 years.
The San Francisco Chronicle
is the Bay Area’s leading newspaper in the
fifth most-populous market in the U.S. It ranks
14th in the country overall, with an average daily
circulation of more than 400,000. We'll be building
an ultramodern plant in the Bay Area and printing
will start in the spring of 2009.
For Transcontinental, this is a
major development, for two reasons. First, it's
an unprecedented partnership: the publisher of
a major U.S. daily has entrusted all its printing
to a specialized company. The second reason relates
to the prestige of the San Francisco Chronicle
and its owner, Hearst Corporation. Their confidence
in us gives us immediate visibility and credibility
with other newspaper publishers in the U.S. and
this should accelerate the growth of this segment
in the years ahead. In fact, we have just set
up a team to focus on this alone, under Ted Markle,
who will be working with Pierre Manseau, Pierre
Deslongchamps and Tony Hebert, among others.
We were able to sign this major
contract due to the leadership and perseverance
of François Olivier, president of the Printing
Products and Services sector, and his team. It
was also François who organized the start-up
of our plant to print La Presse in October
2003, as well as long-term agreements with The
Globe and Mail and The New York Times.
François, please stand up. You deserve
a round of applause from our shareholders.
The daily newspaper industry is
changing fast all over the world. Our outsourcing
model is custom tailored for innovators who want
to ensure they emerge from the current round of
transformations as winners.
V. Future-oriented capital investments
In 2006, we continued to invest
in our future, namely by making capital expenditures.
Benoît will present the figures in a moment.
I'm going to explain the goals of these investments
and what they are being used for.
First, these investments will allow
us to serve our customers more effectively and
increase our production capacity.
For example, we enlarged our plant
in Saint-Hyacinthe, near Montreal, to make room
for a new, state-of-the-art flyer-printing press,
which will be fully operational this spring. We
are Canada’s leading flyer printer and this
investment shows that this is still a growth niche
for Transcontinental, both in terms of major national
chains and non-traditional advertisers.
Furthermore, in 2006 we signed
a five-year contract with the Hudson’s Bay
Company worth $350 million, including $75 million
in new business, to print all their flyers and
loyalty program materials. The contract also includes
the use of a number of our other value-added products
and services. Congratulations to Guy Manuel and
Norrie Meth, who combined their efforts in order
to win this contract.
As president of the Marketing Products
and Services sector, Guy is responsible for the
development of direct marketing in the United
States. The board of directors recently held a
meeting in our plant in Warminster and were, I
believe, quite impressed. Great work, Guy. Please
stand up, though you’re a familiar face
to many of our shareholders.
In the area of premedia, in 2006
the A&P grocery-store chain joined the ranks
of retailers who are outsourcing their premedia
activities to us. Our unique premedia offer, developed
by Nicky Milner and her group, is a strategic
foot-in-the-door for recruiting and keeping customers.
The second goal of our investments
is to enhance our ability to compete. Over the
past couple of years, the rise in the Canadian
dollar has created challenges for Canadian manufacturing
exporters. That's why we announced, back in November
2004, a special investment to buy three advanced
Sunday 4000 presses to print magazines, catalogues
and books, primarily for the U.S. market. Installed
in our plants in Beauceville, Boucherville and
Owen Sound, these presses are now fully operational
and are strengthening our competitive position
in the United States. On the screen you can see
pictures taken at our plant in Owen Sound. In
addition to increased productivity, this advanced
technology gives us greater flexibility and superior
product quality.
In the same spirit, we built a
highly automated printing plant in Louiseville,
about a hundred kilometres from Montreal. This
ultramodern plant opened in June and does short-
and medium-run books in black and white. More
than half of its products go to the United States.
In conjunction with the restructuring of production,
this investment will mitigate the negative impact
of the stronger Canadian dollar. Jacques Grégoire,
Richard Lafrenière and their team worked
hard to complete this project quickly.
We have also been very successful
at developing short-run digital book printing
at our plant in Sherbrooke. The average number
of copies is 800 and the turnaround time is barely
10 days.
Conclusion
To conclude, Transcontinental is
in an excellent position to move into the future
and that future starts right now. I’m very
confident that the goals of our Evolution 2010
project, with these five strategic priorities,
will be fully realized.
Thank you for listening. Over to
you, Benoît.
