Transcontinental Inc

TSX:TCL.A

Earnings Call Transcript 2018-Q4

[Operator]

[Foreign Language] Welcome to the TC Transcontinental Fiscal 2018 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, December 13, 2018.I would now like to turn the conference over to Katherine Chartrand, Senior Director, Corporate Communications.[Foreign Language]Ms. Chartrand, please go ahead.

[Katherine Chartrand, Senior Director of Corporate Communications]

Thank you, Jessa, and good afternoon. Welcome to TC Transcontinental's Fiscal 2018 Results Conference Call. Press release and MD&A with complete financial statements and related notes were issued earlier today. For those of you who are not on our distribution list, the documents are posted on our website at tc.tc.With us today are TC Transcontinental's 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 a listen-only mode and should contact Natalie St-Jean, Senior Advisor, Corporate Communications, for more information or interview request.Please be reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. Also as of the third quarter ended July 29, 2018, the company updated its definition of certain non-IFRS measures, which now excludes the amortization of intangible assets and the reversal of the fair value adjustment of inventories sold in connection with business combination. Please refer to the MD&A for a complete definition and reconciliation of such measures to IFRS financial measures.In addition, this conference call might contain forward-looking statements. Such statements based on the current expectations of management and information available as of today inherently 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.

[François Olivier, President, CEO & Director]

Thank you, Katherine, and good afternoon, everyone.Before I begin, I would like to officially welcome Donald LeCavalier to the position of Chief Financial Officer. As many of you know, he has extensive knowledge of our company, having been with TC Transcontinental for more than 12 years. Donald has a vast experience in finance and a deep understanding on how TC Transcontinental operates as an organization, which will serve him well. Donald takes over from Nelson Gentiletti, who's taking his retirement from the company, and we want to thank him for his valuable contribution over the last 7 years. We wish them both the best of luck.Turning to our performance. We are very pleased with our overall results for fiscal 2018. It was a milestone year in our company's history. The transformational acquisition of Coveris Americas accelerated our growth into flexible packaging, positioning us among the top 10 converters in North America. We also successfully completed the sales process for our local and regional newspapers and sold our printing activities in California to Hearst Corporation. All in all, we created value, executed our business strategy with agility and delivered record profitability for a fourth consecutive year. I would like to thank all of our employees for their contribution to TC Transcontinental's success and a defining year of our transformation journey.Now let me highlight some key factors that contribute to our results. We will start with the Packaging Sector, which is now our largest business from a revenue standpoint on a pro forma basis. During the year, we invested close to $1.8 billion and 3 strategic packaging acquisitions. As you know, we completed the acquisition of Coveris Americas on May 1. We also acquired Les Industries Flexipak and Multifilm Packaging, which are both contributing nicely to our performance. As a results, we now have a global platform of 28 plants and over 4,000 employees selling in [Audio Gap] pet food, agriculture and consumer products. Packaging now accounts for 52% of our consolidated revenues on a pro forma basis from only 4% in 2014. On this basis, our revenues in this sector grew from $308 million last year to more than $1.6 billion. Our TC Transcontinental packaging activities acquired prior to Coveris generated modest organic revenue growth of 1.2% for the year. While we are satisfied with the overall financial results, this was less than our stated objective on a year-over-year basis. That being said, excluding the previously mentioned impact of a change in legislation in one of our key markets earlier in 2018, organic sales growth for the rest of our packaging operation would have been 4% for the full year.Turning to our acquisition of Coveris. It was a significant contributor to our overall results, and we are pleased with its revenues, which are in line with our expectations. The integration is proceeding smoothly, and we are already working as one team with our new management structure in place. As we told you at the time of the acquisition, one of our key priorities is to strengthen the sales force in order to rejuvenate sales growth.Several initiatives are happening on this front to simplify operations, increase cross-selling to leverage our complete offering and incentivize our people. We now have a common CRM system. Sales processes have been standardized across the platform, and the sales force have a clear line of sights into its sales targets. Recall however, that sales cycles in our industry tend to be long, and this process will take several quarters to generate new sales, and so we expect this have to a more meaningful impact starting in fiscal 2020.In terms of profitability, our Packaging Sector, like many of our peers in the industry, experienced an increase in cost of raw materials as well as freight which affected our results for 2018. We were impacted by a delay in pass-through of these increases for our customers.Fiscal 2018, we also made several capital investment in our TC Transcontinental packaging platform, which made us incur some onetime costs that impacted our 2018 profitability. That said, we are pleased that we have been able to stabilize margin and progress as per our plan.Our investment thesis remains the same. Coveris is a significant engine of growth for us, and we expect it to further contribute to our profitability during fiscal 2019. We are in very early stage of realizing synergies, and we are well positioned to accelerate them. Once again, we feel very comfortable with our previously established targets.Over the next few months, we will execute on our operational plan for fiscal 2019, including realizing cost savings and then revenue opportunities as well as leveraging our strong manufacturing capabilities. On a combined basis, we expect our overall packaging revenues to post about 1% top line growth this fiscal year, in line with our previous guidance. We are confident in our ability to realize the full potential of all of our assets and drive new growth opportunities. Our consolidated platform has the capacity to accommodate additional volume.Turning to our printing sector. We deliver once again a very good performance this year, where our top and bottom line results in line with our plan. Excluding our disposal of assets and the impact of the end of deferred revenue and profits from previously announced newspaper agreements, we are pleased with the stability in our revenues, and we posted solid profitability with a slight year-over-year increase in adjusted operating earnings. On this basis, our adjusted margin for the sector remains very healthy at 20.5%, similar to last year.More specifically, we are pleased that demand for our retail-related services offering remain relatively stable. This year, we benefited from the renewal of our multiyear agreement with Loblaw Companies Limited, which include the full range of these services as well as additional volume for the printing of in-store marketing products, free media services and commercial printing. We believe that our offering of printed fliers and other related services is creating value for our customers and remain highly relevant to Canadian retailers in order to drive traffic to the store.Our in-store marketing products vertical represent an avenue of growth for us. During the year, we won agreements valued at about $15 million annually, which are already ramping up very nicely with the full benefit expected in 2019. These wins boost our revenue in this business to close to $75 million on an annualized basis, putting us on track to achieve our goal of $100 million. We are seeing growing enthusiasm and continue to pursue potential opportunities with both retailers and nonretail customers.As for the rest of our nonretail-related business, the decline in revenues follow the same trends as in previous quarters, and we will continue to adjust our cost base to volumes to protect our sector's profitability. Note that our revenue during the year benefited from price increase for certain types of paper with no impact on our profitability, as these are pass-through to our customers.In addition, following the sales of our printing activities in Fremont, California, to Hearst, we began reallocating some of our equipment to our Canadian printing platform, a move that will enable us to drive increased efficiency in our retail manufacturing platform and should contribute to reducing our cost starting at the end of the third quarter of 2019 with the full impact flowing in 2020.And now a note on our media activities. As I said earlier, during the year, we successfully completed the sales process of our local and regional newspapers in Québec. These publications are now in the hands of local owners, and we continue to print and distribute all of them. We are very satisfied with the results of this process, and we are pleased that these new owners will now have access to newly announced federal and provincial support programs for publishers.As for financial results, of our media business, we are very pleased with our performance for the years. Thanks to cost reductions and great performance in our current activities, adjusted operating earnings grew 27% from $14.5 million to $18.4 million despite these 50% decline in revenues following the divestiture of newspaper. We are very proud of these results. And going forward, the media activities are now refocused towards our business and education portfolio where we have a leadership position, and which, as I mentioned, performed very well in 2018.In conclusion, in our Packaging Sector, we will execute on our 2019 operational plan, and we will achieve our synergies target. We will focus on strengthening our sales force and remain very confident about delivering on our investment thesis for the Coveris acquisitions.On the printing side, measures are continuously being taken to further optimize our platform and adjust our cost base to volumes, including automation. We are also focused on tapping into new growth opportunities in certain regions and verticals. We expect this business to continue to deliver strong free cash flow.For our Media Sector, we will focus on further developing our business and education portfolio and we expect to deliver stable results in terms of profitability. Finally, it is also our priority to use our strong free cash flow generation to continue to deliver it to the company.With that, I'll turn it over to Donald.

[Donald LeCavalier, Chief Financial Officer]

Thank you, François, and good afternoon. As François mentioned, we delivered record profitability in fiscal 2018. Excluding the favorable impact of stock-based compensation expense and the unfavorable noncash impact of the recognition of deferred revenue and profit from certain newspaper agreements, our adjusted operating earnings increased by 18.1% this year.Before looking at profitability in more detail, let me give you an update on cost saving synergies with the respect of the Coveris acquisition. We now believe we will realize more than USD 20 million of cost saving over the first 24 months post-closing of which $10 million are expected to be realized in the first 12 months of run based -- on a run-rate basis. During the early stage of the integration, the first phase has started to ramp up, and we fully expect it to reach its full impact at the end of Q2, 2019. The initial synergies are driven by procurement-related cost savings as well as prepress and plate-making insourcing.Turning to profitability for our packaging business. The combined EBITDA margin for this sector was 12% for the year. Please recall that at the time of the acquisition of Coveris, we reallocated management fees between the printing and packaging sectors. Excluding this impact, margin for the year would have been 12.6%.Before I comment on our cash flow and provide you with more color on our expectation for fiscal 2019, let me take a few minutes to go over some of the elements that affected our profitability in the printing sector. In terms of the impact on our revenues and adjusted operating earnings in the fourth quarter, the negative noncash impact related to the deferred revenue from the end of the printing of the San Francisco Chronicle, La Presse, and The Globe and Mail and the Maritimes, essentially accounted for almost all of the $12.8 million decrease in the quarter. For the year, the impact was $28.9 million. Excluding the impact of these transactions, our Print Sector had another great year with adjusted EBIT growing slightly for the year. You can find more information in Table 4 of our MD&A.In fiscal 2019, our revenues and profitability will be negatively affected by 3 main elements related to the end of our activities in Fremont, California: A $12.3 million noncash impact in Q1 and Q2 as we will no longer recognize deferred revenue from the printing of the San Francisco Chronicle; $9 million is from the nonrecurring transition service rendered to Hearst in 2018; and $16 million in revenues associated with the rest of the operations sold to Hearst with minimal impact on profitability. Taken together, the resulting negative impact of which a good portion is noncash will be approximately $37 million in revenues, $22 million at the EBITDA level and $20 million at the EBIT level.Now turning to our cash flow for the year. Net change in cash amounted to an outflow of $207 million, and we closed out the year with $40.5 million of cash. Cash flow from operating activities was about $313 million, which include -- includes $42 million of tax payment. Please note that excluding cash disbursements of about $55 million related to the Coveris acquisition and its integration, cash flow from operations would have amounted to $368 million. We also disbursed $1.6 billion for acquisition, namely for Coveris Americas for which we issue debt and equity totaling about $1.4 billion. We allocated $59 million to CapEx, distributed $69 million in dividend and repurchased share for $24 million.At the end of the quarter, our net indebtedness was $1.4 billion. Our indebtedness ratio stood at 3.1 down from 3.5 at the end of Q3. On a pro forma basis, it stood at 2.7 at the end of Q4.Now to our outlook for fiscal 2019. In our Packaging Sector, on a combined basis, we expect organic revenue growth of about 1% this year. We expect our acquisition, mainly Coveris, to significantly contribute to our revenues and adjusted profitability over the next 2 quarters. We expect Coveris revenues to be comparable to those of 2017 and its profit margin to gradually improve towards our stated targets over the next few quarters as a result of synergy progressively beginning in early fiscal 2019 and through an increased focus on manufacturing efficiency initiatives.In our Printing Sector, we expect revenues for our retailer-related service, which represent the majority of our revenue, to remain relatively stable in fiscal 2019 when compared to last year's. The remaining portion of our printing portfolio should be affected by expected volume declines due to the same trends observed in recent quarters. We will no longer benefit from the transitional revenues of $9 million coming from Hearst, which ended in Q4 2018. In terms of profitability, the impact of the Hearst agreement will negatively affect our adjusted result until Q2 2019.In the Media Sector, we expect our business and education portfolio to continue to deliver stable profitability.For the 2019 P&L, assuming the stock price of the last 5 days average, you should model for full year corporate cost at the EBITDA level of about $28 million. As a reminder, a change of $1 in our stock price impacts our results by close to $1 million. Our full year financial expense are expected to be at 2x higher than last year. Our effective tax rate is expected to be in the mid-20s range.In terms of the use of cash for the year, you can assume CapEx of about $100 million, including Coveris Americas. This includes operational CapEx of about $80 million and an additional $20 million in growth CapEx project for this year to capture synergies. As for cash tax, for the year, you can assume $85 million. Note that the year-over-year increase is mostly due to a timing effect, including a tax payment of about $20 million scheduled for Q1 2019. In terms of our debt ratio, we expect it to decline below 2 by the end of fiscal 2020.To conclude, TC Transcontinental continues to execute on its strategy to generate profitable long-term growth and create value for its stakeholders. Based on our strong foundation, a combination of manufacturing efficiency, promising business verticals, strong customer relationship, focus on realizing synergies and organic sales growth, we expect to continue to generate significant cash flows, which should enable us to allocate capital towards reducing our indebtedness.On that note, we will now proceed with the question period.

[Operator]

[Foreign Language] [Operator Instructions] Mark Neville, Scotiabank.

[Mark Neville, Analyst]

Maybe just first on the growth in the packaging. I was -- organic growth, sorry. It looked it was flat in the quarter. I think you're talking 1% for next year. I guess, I just would have expected some sort of pricing gains in the quarter from the pass-through, the higher resin. So I'm just curious you can speak to volume in the quarter. And then for the '19, when you speak to 1%, are you talking volume or a combination of volume and price?

[François Olivier, President, CEO & Director]

Yes, yes, all right. Maybe to talk about the resin price, I think we should start to see more lift in Q1 of our price increase as some are 3 months. So the 1 month we got, but most of them were 3 months. So it will kick in more in Q1 in terms of those price increase. And what I like about freight and then paper is still very tight. But -- and resin, it seems to be slowing down. And in terms of the increase and we might expect in the category that we're buying maybe even looking at the price decrease early in the year. So that should contribute one -- more in Q1. And looking forward, it looks like for a lot of the plastic items that we buy, the increased slowdown and maybe we expect a decrease. In terms of the organic growth, for sure, you guys are focusing on the legacy TC, which is our 4 plants. And these 4 plants for Q4 were flat, which was way beyond our expectations. But like I said in this business, it's not like our print business, where we do the Globe every day and we do the flier for our retailers every week. Obviously, I have the numbers for November's. A lot of this vertical that we said last year was going to be delayed is kicking in. So if I would take these 4 plants and include the month of November and look at what is the organic growth in the TC legacy portfolio for the last 4 months, which include November, it would be 7%. So it is a small number, and it looks like we're going to have a much better Q1 in this small portfolio. Obviously, we're going to start talking about 4 plants, when we have 28 going forward. We were very pleased with the Coveris fourth quarter in terms of revenue. You guys were forecasting for about a little bit shy of $400 million of revenue in packaging, and we delivered $22 million more than your forecast. And your forecast was very close to my forecast, too. So we're very pleased with how Coveris ended the year from a revenue standpoint and a process standpoint. And then when we're looking over for next year, basically, we're saying, we think that we could grow the platform by 1% considering the fact that we just delivered more than $20 million than what we thought in Q4. So we're up against this, but we still feel pretty confident about our ability with the combined platform to generate the 1% organic growth. Obviously, if we could do more, we will. For sure, the TC plants are going to -- on a percentage basis are going to contribute more than Coveris, but they're very little now in the overall packaging revenues. So that's kind of the color I could give you in organic growth.

[Mark Neville, Analyst]

Okay. And then the 1%, again it's just, I guess, the combined pro forma platform growing organically at 1%. That's -- just want to make sure I'm understanding you correctly.

[François Olivier, President, CEO & Director]

Yes, it'll be more like if you look at our true organic, which will not include Coveris for Q1 and Q2 because we will record Coveris in Q1 and Q2 as acquisition. Obviously, if you look at it that way then it will be a lot more than 1%. I'm saying 1% on $1.6 billion-plus. So I'm talking about the $16 million to $20 million of growth with the platform. That's what I'm talking about.

[Mark Neville, Analyst]

Okay, okay. And then when I think about the margin, I can sort of understand the synergy, one, the way you're talking about that and sort of do the math on that. But I guess, just a lot of moving parts with resin prices sort of declining, paper still going up. There's pass-through mechanisms. So just sort of, I don't know how you're thinking about the trajectory story of margin from here in the packaging business?

[François Olivier, President, CEO & Director]

Yes, well, let's establish what we start with, and then I'll tell you what I think where we're heading. Our results for the first 6 months of Coveris and then for TC globally is about 12%.Having said that, when we acquired Coveris, we had to relook at how we were allocating corporate costs between our division, and we have to obviously allocate more costs to packaging as they grew in size. So just this move of cost that have not -- in a sense, nothing to do with the assets we acquired or the platform we were running before is costing 0.6% of margin. Now nothing is created. This is helping the print. Now don't get me wrong, but you know 0.6%, and you could take that the raw material pass-through that we're waiting for. In the first 6 months of Coveris have cost us about 0.4% per quarter. So these 2 elements is about 1 point. So on a comparable basis of what were acquired, you could say we're at 13%. Now we're going to stop talking about that. So we're starting from 12%, and we think that the next year objective is to be above 13%. So that's where we're heading. What's going to help us do that is the synergies kicking in and then the pass-through kicking in, and that's what our plans call for. And our plan is to put 1 point per year, which is about $16 million of EBITDA improvement year-over-year, and we have a plan and the strategy to execute that.

[Donald LeCavalier, Chief Financial Officer]

And for your model of markets, like I said in my notes, if you calculate the $10 million that we say we're going to be full run rate by -- of the year, so it's CAD 13 million. So I guess you should take a majority of this 13 million should hit our bottom line this year. So that will obviously have an impact on our margin.

[Mark Neville, Analyst]

That's very helpful. And maybe just the last one, and then I'll -- you threw a bunch of numbers out for '19, the impact from sort of various things with the Hearst transitioning. I think it was $20 million in EBIT, if my memory serves me. Is that all first half? Or is that sort of throughout the year?

[Donald LeCavalier, Chief Financial Officer]

For the exact number, you can still go to Table 4 in the MD&A. The biggest part of the deferred revenue is on the first half for sure. Will it be done by the end of the second quarter? And as far as the transitional revenue, it's $9 million, but we kind of depreciated over the years. So it will have an impact for most of the year. You can divide it by 4 quarters, but the deferred revenue for sure, will be done by the end of Q2.

[François Olivier, President, CEO & Director]

If you look at the table, it's clearly written. It's $9.9 million for Q1 and $4.5 million for Q2, and then we're done. And then the deferred revenue is going to impact -- not the deferred, the transitional revenue that we charge Hearst is really Q2, 3 and 4, about $3 million a quarter.

[Mark Neville, Analyst]

The $16 million? In terms of the $16 million number?

[Donald LeCavalier, Chief Financial Officer]

No, the $16 million is the remaining business we were doing with the plant over there with minimal [ outline ]. So...

[François Olivier, President, CEO & Director]

No impact on it.

[Operator]

[Foreign Language] Adam Shine, National Bank Financial.

[Adam Shine]

Donald, maybe to start with you, just on the context of free cash flow, can you go back and sort of explain what might have transpired in the Q4 with the greater working capital usage? I think there was some maybe timing and/or accounting dynamic.

[Donald LeCavalier, Chief Financial Officer]

Well, you're right about that. There's a lot of accounting going on in our cash in Q4. This is why I was trying to remove the noise from the timing and to look before the year, pushing away everything regarding from the deferred revenue, those things. And if you push away also the part of Coveris, we're mainly up by about $30 million. And it's mostly timing with receivable with the printing group. And those things happen at the end of Q4. Sometime we're going to receive 2 huge payments just before we close. Obviously, we try to push our customers to pay us before year-end, but this year, there's a question of timing. The noise from Coveris is coming. Those guys were managing their working capital way differently than us. We saw some ways to get some better discounting by that by paying differently, but obviously, it does have an impact over our fourth quarter cash flow. But this is all behind us now. So Coveris is a stable business from the one we see. So we should see movement like that in the coming quarters, and all the accounting part obviously will be done. And this is something that we can go on a call later to go details by details, but this is very deep accounting issues. Most of it is on cash.

[Adam Shine]

Okay. Perfect. Okay. And maybe, François, obviously on the back of some of the disclosures in recent weeks on the dynamic in Montréal, in the Publisac. You've obviously recently press released that you'll participate naturally in the consultation. Curious if you bring to bear a bigger lobbying effort from your retailer customers to sort of emphatically highlight the benefits to consumers.

[François Olivier, President, CEO & Director]

Yes, this is not something new to us. These types of public consultation happen in many other Canadian cities, Calgary, Halifax, Ottawa, in the recent year. And so we're looking forward to participate in this new one. We've personally met with some people from the city of Montréal who's going to run this process. I think it's going to be a very healthy process. This is -- you have to understand, this is a general process about recycling. It's not about the Publisac. It's about recycling in general. We will participate. Why are we going to participate? Because in this province, the people like Transcontinental and the retailer and the publisher are the people who are paying for the cost of all the recycling centers in Québec. So I have a vested interest to try to improve recyclability and efficiency of these centers. But am I worried about the future of the Publisac and about the distribution of weekly paper in this province and then flyers? Not really. But could we positively participate in the audience and contribute to have the very high percentage of recycling of newsprint in this province, which is at 86%? Can we go at 90%? Can we go at 95%? Maybe. But am I nervous about the long-term viability of the Publisac? Not really.

[Adam Shine]

Okay. Excellent. And maybe I'll just go back to Donald for one second. Just vis-à-vis the EBITDA, corporate cost, $28 million, I would have thought we would have seen a lower number. Does the $28 million perhaps not include some of the inherent benefits that could come from the Fremont equipment move up into Canada and maybe you're just hedging your bets as to the timing of some of those benefits? Or is that $28 million probably something we should reasonably model now?

[Donald LeCavalier, Chief Financial Officer]

Yes. No. There is nothing -- there's no link between Fremont and corporate cost. All the saving from the Fremont press that we'll bring will be one -- in our 2 plants. So you should see that saving in printing. And as we said in the opening remarks, it will be mostly by the end of 2019. And it's -- obviously, we take the stock price as it is today. So one of the big impacts for this year is the fact that the stock went down by a high percentage. So this should be a way. And we definitely control our cost rate, but we'll bring a little bit of cost from the Coveris part on our side. So no, there's nothing -- there's no link with Fremont in our corporate cost.

[Operator]

[Foreign Language] Drew McReynolds, RBC.

[Drew McReynolds, Analyst]

So Donald, I just want to -- just because there was all that confusion around Hearst last quarter, I think -- I certainly understand the $18 million impact in Q1 and Q2. That gets you to that $37 million revenue and $22 million EBITDA and $20 million EBIT. And then you have the $9 million transitional revenues kind of taken off. And I think you said kind of $3 million each, Q2, Q3, Q4.

[Donald LeCavalier, Chief Financial Officer]

Yes. So the $9 million, just to make sure, the $9 million is part of the $22 million you mentioned. So there's no $22 million in $9 million. The $22 million includes the $9 million EBITDA impact. Okay. $9 million is cash, and the rest is noncash. That's the important part.

[Drew McReynolds, Analyst]

Okay. And then lastly, back to an earlier question. The $16 million, I know it's 0 EBITDA impact. But just for modeling purposes, are we still to take that $16 million out on a revenue estimate?

[Donald LeCavalier, Chief Financial Officer]

Yes, yes. From the $37 million, yes.

[Drew McReynolds, Analyst]

Okay. And that $37 million includes that $16 million?

[Donald LeCavalier, Chief Financial Officer]

Yes, it includes everything.

[Drew McReynolds, Analyst]

Okay, okay. Got you. Got you. Got you. And then also just on, I think, the $100 million roughly in other revenue for fiscal '18. You provided a little bit of granularity, and obviously, a lot of moving parts this year. Is that a good base off of which to model going forward?

[Donald LeCavalier, Chief Financial Officer]

Yes, yes, that's the good base.

[Drew McReynolds, Analyst]

Okay. And just switching gears a little bit to free cash flow priorities. Obviously, debt repayment is #1. Can you just speak to appetite for a further dividend increase and/or share repurchases just given the market dynamics in your stock and going forward just given your free cash flow profile?

[François Olivier, President, CEO & Director]

Yes. Well, free cash flow domain, as you said, our #1 priority will be to deliver the company. This is for sure. As far as the decision for the dividend, this is something that we will talk internally. We do in every first quarter of the year. And historically, we've been increasing the dividend, but this is a year-by-year decision for the company. So we're not going to disclose anything regarding that. We will take the decision. But we have room to pay dividend. We have -- we're still producing a lot of free cash flow. But our main priority remains to leverage the company.

[Drew McReynolds, Analyst]

Okay. And maybe a final question for you, François. Just, I guess, qualitatively talk about just some of the reinvestments you have put in the Coveris. Where about are you on reinvesting in the sales force? You alluded to certainly out-of-the-gate investing for the long term here. I'm just trying to gauge where you are in that process and better understand some of those kind of incremental costs layering into the cost structure as a result.

[François Olivier, President, CEO & Director]

Yes. I think what we did from an operational standpoint, we restructured the company. We created the 6 very distinct operational groups. We were very clear on what we were going to centralize, and sales was not one of these things. So each group has a clear focus on their business and a clear accountability to make it happen. We have centralized, though, the 2, the process and the system is managed by somebody who comes from TC. So we chose the technology platform that we're going to use to follow sales. And we've kind of introduced our recipe to each group, but the execution is within each group. And each group have different -- are in different place. In some group, we are the market leader and we have very large market share. So our growth is with the small customers. In other vertical, we're the other way around and everything in between. So what we changed fundamentally is they had one big sales force managed centrally. We kind of decentralized the sale effort and tied up each sales strategy to the business strategy of each vertical, which could be different. So maybe in some vertical, we're chasing very large CPG. And in other vertical, we're chasing very small and growing customers. So this is where we're -- this is where we're at. All these movements have been done. And now we are in the execution phase, and we will see our people perform with our new ways. But we're very well equipped to track progress. And having said that -- and most vertical, some vertical, the sales are going to come in faster than other because there's less qualification. But in some vertical, it is going to take time for sales to hit the P&L. But I'm very encouraged by the early signs of discussions we have with customers and have met a lot of our new sales representative. So I'm positive about our ability to grow organically. But we'll need a lot of effort and a little bit of time.

[Drew McReynolds, Analyst]

And then last one from me. You talked about -- reiterated your $100 million kind of revenue goal for the in-store marketing piece of the business. I'm wondering kind of the time frame you're hoping maybe to kind of close the gap between your $75 million run rate today and maybe that $100 million target.

[François Olivier, President, CEO & Director]

Yes. There's 2 things I need to do. When we were doing $5 million, and I told my people we're going to create a $100 million business, I need to reset the target because now the target is in reach. But more seriously, we think that we can grow this business $10 million to $15 million a year. So 18 to 24 months, you will probably see us reach $100 million. What is interesting though, strategically, we're having meetings right now with the team, is as we have started in the last 18 months to enter the non-retailer market of POP, these folks, as they have different product that they are buying, they have different needs. And these are products that we don't have in our offering right now. So we're thinking of maybe product expansion in that vertical organically or through acquisition. And we're going to reset the new target for this business when our strategic reflection is done at the end of Q1. And you might see us change the target for that business with this new strategy.

[Operator]

[Foreign Language] [Operator Instructions] [Foreign Language] David McFadgen, Cormark Securities.

[David John McFadgen, Director of Institutional Equity Research]

Just maybe a couple of clarifications. François, was the EBITDA margin at Coveris 12.0% in Q4?

[François Olivier, President, CEO & Director]

What, David? I missed that. Is the EBITDA margin at what?

[David John McFadgen, Director of Institutional Equity Research]

Coveris in Q4, was it 12.0%?

[François Olivier, President, CEO & Director]

Yes, it was, yes. Around that, yes.

[David John McFadgen, Director of Institutional Equity Research]

Okay. Okay. And the target is still to get to 13%. In order to get to the 13%, do you have to realize those cost savings? Or you can get there excluding them?

[François Olivier, President, CEO & Director]

Yes. We think we are going to get to the 13% and probably surpass the 13% next year. Like I said, once we pass those price increase in Q1, we should gain about 0.4, 0.5. So let's say we're starting at 12.4, 12.5. Obviously, with the synergies that we will start to kick in, we feel that, yes, we will reach the 13%. Surpass it would be our goal.

[David John McFadgen, Director of Institutional Equity Research]

Okay. Okay. So given the packaging EBITDA margin in Q4 was basically 11.9%, I guess, the rest of the packaging business was also at about 12%. Is that right?

[François Olivier, President, CEO & Director]

Yes. That's -- I can make you the same comments I did for sales. For the TC packaging group, organic revenue for Q4 was flat. But if I include the month of November, I'm at plus 7% for the 4 months. So EBITDA of the legacy TC business would tend to be higher than the Coveris one. It happened that in Q4, it was similar. But going forward, it would be higher. And like I said, if I include the month of November, if I take 4 months instead of 3, it is higher -- much higher than the Coveris one.

[David John McFadgen, Director of Institutional Equity Research]

Okay. Yes, because in the past, it was tracking in the -- about the 14% range. And so I was kind of surprised to see it...

[François Olivier, President, CEO & Director]

Yes, it's been 14% and 15%.

[David John McFadgen, Director of Institutional Equity Research]

Yes. So I was kind of surprised to see it dropped down to 12%. But you said it's a temporary thing and it will be back up?

[François Olivier, President, CEO & Director]

Yes. In one of the plants, we have added capacity for the pet food market. So in Q3 and a little bit in Q4, we incur some onetime costs because a lot of the work we did ourselves but now that's all behind us. And then -- and the coffee -- and then the vertical that I mentioned was delayed. It's been delayed, but now it came in very solid in November and December. So now we start to reap the benefit of this delay because we have -- actually, we haven't lost any customer. We have gained customer in that vertical. And we thought that the sales was going to come in Q4, but the U.S. authority gave our customer a 3-month grace or longer period to use their own inventory, which have delayed us getting all the big orders by 3 months. Now they are in. Not only they are in, we have gained customers. So that's why if I include the month of November in the numbers and I look at the last 4 months in the TC platform, the organic growth is 7% for the last 4 months. So it's a business that unfortunately, looking at it quarter-by-quarter, especially when the platform was small like TC, I think you will see a lot less variability now with Coveris included because our portfolio is much bigger. So some vertical might be delayed by a month. Some other could gain. So I think you will start to see some more -- probably more stable results. Recall that in the TC packaging, we had a quarter at plus 9% and one at minus 3% and then one at 0. And then we're not going to disclose that going forward, but it looked like our Q1 would have been probably a lot more -- big double digit. But now with -- having a bigger portfolio, I think it will be a lot more stable and easier for us to explain all those movements.

[David John McFadgen, Director of Institutional Equity Research]

Okay. What do you think the probability is that you could see another raw material price increase that could kind of delay getting back up to 13% margin?

[François Olivier, President, CEO & Director]

What I said is that we don't see any change in freight. Freight is still very tight. Paper has now stabilized, and we think that now in plastic, which is our biggest buy, might actually start to go down early in the year. So that's what we see right now. So that's good news for us and our customers.

[David John McFadgen, Director of Institutional Equity Research]

Okay. And then just lastly, just on the working capital, do you think that for fiscal 2019, it could be flat? Or do you think there will be another working capital use?

[Donald LeCavalier, Chief Financial Officer]

Well, as I said earlier, I think Coveris should be flat where most -- I think most of the noise should be us, the adjustment. In this business, we don't see any seasonality in this business. So on that side, I think it's mostly behind us. For the printing business, as you know, fourth quarter usually is our big quarter. And we crank out some receivable. So there's always a movement between Q4 and Q1, and my guess is that we will go that way. On the other way, we will be more and more proactive to manage our raw material because sometime we might say we might borrow a little bit more because we think that we can do it at pricing. So the inventory with Coveris might play a role in the current year, but I don't have enough vision right now to tell you what will be the impact.

[Operator]

[Foreign Language] Ms. Chartrand, there are no further questions at this time. Please continue.

[Katherine Chartrand, Senior Director of Corporate Communications]

Thank you, everyone, and we'll talk to you in the new year.

[François Olivier, President, CEO & Director]

Thank you.

[Operator]

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