Transcontinental Inc. -- Growth on the Horizon

By Erik Cagle

Senior Editor

Luc Desjardins has many babies, and they all demand his constant attention. For the president and CEO of Montreal-based Transcontinental Inc., a constant eye is kept on one offspring in particular, named Horizon 2005.

There's little doubt that Horizon 2005 is being raised as, arguably, the biggest child in the Transcontinental family—one with promises of (C)$2 billion to (C)$3 billion in growth from its late 2001 inception through the year that bears its name. But among Transcontinental's plans of acquisition and internal growth are other key points of this multifaceted initiative:

* A major component of Horizon 2005 is a continuous improvement project to optimize its three-sector efficiencies. Included in this is a training program for employees and a leadership program for management. Transcontinental has a turnaround focus for less-profitable operations and follows the "Kiazen" program for continuous improvement, a methodology that stresses teamwork, communication and directing energy toward achieving a common goal.

Transcontinental is also developing a system with the same platform for the simplification of transactional and all back office operations.

* The company boasts a disciplined finance and M&A approach to growth, while maintaining financial flexibility and solid financial performance.

"Horizon 2005 is really a complete orientation for the organization—growth through acquisition and internal growth development, systems, operations and simplifying back offices. Equally important is to be world class and become more efficient every day and in everything that we do," Desjardins explains. "We called it Horizon 2005 because we knew we couldn't accomplish all of that in one year. It is going extremely well, as planned, with some positive surprises in the operational efficiency costs. We are very pleased with year-to-year improvement."

Transcontinental, which recorded (C)$1.9 billion in revenues for fiscal 2003, employs more than 12,000 in Canada, the United States and Mexico. In Canada, it boasts top or secondary market share in the printing of direct marketing products, inserts, flyers, books, newspapers, magazines, catalogs and directories. It is also active in media-related businesses such as door-to-door distribution of advertising material, development and integration of Web-based solutions, and the electronic aggregation of news and business information.

The company made significant inroads on its growth by acquisition initiative with the December 2003 purchase of U.S. direct marketing specialist CC3, a (U.S.)$127 million business that delivers 1.5 billion marketing pieces per year.

The following month, Transcontinental Inc. announced it had purchased more than 99 percent of the stock of Optipress, which owns 25 weekly and bi-weekly newspapers, nine printing plants and a network of digital reproduction centers in Canada. The cash considerations for the two businesses totaled (C)$223 million.

Direct Marketing Focus

"CC3 is an excellent company. In the right sector, part of our plan was to get more involved in direct marketing," states Remi Marcoux, chairman of the board of Transcontinental. "In the United States, direct marketing is an industry that is not concentrated yet. For us, it's a niche with high growth potential. The DMA (Direct Marketing Association) is forecasting a growth rate of more than 6 percent for the coming year.

"We targeted CC3 for two reasons: first, we intended to grow in that niche in the United States. Second, CC3 has developed many services that complement our own printing business. We intend to continue to develop those services for many of our printers. They offer data management, direct marketing printing, as well as lettershop and fulfillment services. It's a complete offering for large customers."

Marcoux notes that, historically, Transcontinental's business has been generated via two-thirds acquisition and one-third internal growth. The company's short-term objective is to integrate the two acquirees, but Transcontinental is still on the lookout for opportunities that align with its growth proposition—U.S. direct marketing, newspaper printing outsourcing in North America, sheetfed printing in Canada and book printing in the United States.

"Our M&A department is still looking to buy, but the acquisition process—including the evaluation—takes time," Marcoux states. "We have a very good M&A department looking for additional business, and they're also part of the team that does the integration. Optipress is a good fit for us, especially with the assets that we already have in the Atlantic region. It complements our daily and weekly newspapers."

The CC3 acquisition was a product of carefully scrutinizing the pool of available businesses that meshed with Transcontinental's objectives. In the end, the company stood out based upon its solid management team, a diversified customer base and a three-year growth record that made CC3 too good to pass up.

The acquisitions came on the heels of a 2003 campaign that produced predictable results, with 7 percent growth in revenues over 2002. Part of getting through a challenging year, Desjardins notes, is not getting caught by surprise.

"When we're having a good year, we say, 'Why don't we prepare for the tougher years?' " he states. "We are in three sectors: information product printing, marketing product printing and media business. What we did, before 2003, was restructure the business into those three sectors. Each sector fits for offering products and services made by each individual customer type, so with the print and the service of marketing products—all groups under the sector—we're positioning the combined offering to resolve customer problems and meet their needs.

Services Acquired

"With our acquisition of CC3, we are a company that has printing and fulfillment and database services. We are selling information product printing to customers of our publishers. Every customer in that sector is a publisher. So the knowledge that we have on products/services for our customers is shared by everyone in our sector. When you take the three different sectors, we're connecting them where it makes sense. There are some core competencies that fits those three sectors; that's what makes this one organization the most sense to be together."

On the equipment end, Marcoux notes that Transcontinental was the first company in Canada to develop a network of KBA Karat digital offset presses, acquiring the third and fourth such units in North America. The company is in the process of digitizing all of its operations, investing in premedia, taking the digital route in direct marketing work and developing a single platform for all of its businesses.

In fact, Transcontinental has invested (C)$120 million and (C)$140 million in new equipment in 2002 and 2003, respectively. The 2003 figure includes a new press and facility built to print the largest daily newspaper in Montreal, La Presse.

For 2004, Transcontinental has a capital expenditures budget approaching (C)$100 million. The individual business units were to prepare a wish list to present to senior management in March to help provide a Transcontinental braintrust of 20 attending Drupa with an investment plan.

"We'll do our homework so we can go there and be ready," Desjardins notes.

In remaining competitive and viable in challenging markets, Desjardins doesn't necessarily view the business landscape from an "us vs. them" mentality. Much of what helps to define Transcontinental is taken from the Horizon 2005 strategic plan, which has helped to set a clear path for the company.

The questions it aims to address include: what are the customers' needs, and how to identify and satisfy their problems; how to internally maximize opportunity and efficiency; and how does the company view sales growth through internal growth and through acquisitions?

Basic Training

"We're working as one company to leverage our best intelligence and our best practices," Desjardins states. "We conduct training programs for every employee, including management. We're evolving from selling a product to becoming more of a business resource for customers. We have a continuous improvement program to improve what we do in all areas—systems, operations, productivity and sales.

"Less than half of CC3's sales represents print; the rest is fulfillment and data mining management. They offer a lot of services we do in some of our businesses here, and we want to apply the services that make sense in every group of businesses we have to become a better resource for our customers. We've grown very rapidly in a high-growth-potential niche in printing, as well as in publishing. Our profile is changing from being a product-specific business to more of a value-added service and niche. In our three sectors, the growth since 1997 has been phenomenal and we intend to continue in that direction."

Marcoux notes that 30 percent of Transcontinental's sales comes from the United States, a figure he projects will reach 50 percent with initiatives such as further direct marketing growth, added news-paper share and a venture into the U.S. book printing arena. And while 2003 wasn't sound performance-wise in the states, he believes that could change soon.

"Right now the industry is going through a difficult time, but there's no doubt that the market will come back," he says. "We've already seen some signs that 2004 is better. We want to be part of that growth for years to come." For Transcontinental, that growth is somewhere on the Horizon 2005.