Investor presentation Alan Torrie, President & Chief Executive Officer Scott Milligan, Chief Financial Officer September 2013
Forward ‐ looking statements This document contains “ forward ‐ looking statements ” within the meaning of applicable securities laws, such as statements concerning anticipated future events, results, circumstances, performance ,or expectations that are not historical facts. The use of words such as “ may, ” “ will, ” “ expect, ” “ believe, ” or other words of similar effect may indicate a forward ‐ looking statement. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including those described in the firm ’ s publicly filed documents (available on SEDAR at www.sedar.com) and in Morneau Shepell (the firm ’ s) MD&A under the heading “ Risks and Uncertainties. ” Those risks and uncertainties include current economic conditions, income tax matters, the ability to maintain profitability and manage growth, reliance on information systems and technology, reputational risk, dependence on key clients, and reliance on key professionals. Many of these risks and uncertainties can affect the firm ’ s actual results and could cause the firm’s actual results to differ materially from those expressed or implied in any forward ‐ looking statement made by the firm or on the firm ’ s behalf. Given these risks and uncertainties, investors should not place undue reliance on forward ‐ looking statements as a prediction of actual results. All forward ‐ looking statements in this document are qualified by these cautionary statements. These statements are made as of the current date and, except as required by applicable law, the firm undertakes no obligation to publicly update or revise any forward ‐ looking statement, whether as a result of new information, future events or otherwise. Additionally, the firm undertakes no obligation to comment on analyses, expectations, or statements made by third parties in respect of the firm, its financial or operating results, or its securities. Confidential – Not for Distribution 2
A long history of growth and acquisitions 1962 Sobeco was founded and helped launch the Québec Pension Plan 1966 W.F. Morneau & Associates was established 1992 Morneau forms a strategic alliance with Coopers & Lybrand and absorbs its pension consulting and actuarial business 1996 Morneau launches its administrative outsourcing practice 1997 W.F. Morneau & Associates and Sobeco merge to form Morneau Sobeco 1998 Morneau acquires the Canadian pension consulting practice of Deloitte & Touche 2005 The firm becomes an income trust: Morneau Sobeco Income Fund 2006 MSIF expands its western Canada presence by acquiring Heath Benefits Consulting 2007 MSIF enhances its Ontario presence by acquiring the defined benefit pension business of Cowan Benefits Consulting 2008 MSIF adds further depth in western Canada by acquiring the actuarial firm of Leong & Associates 2008 Morneau Sobeco Income Fund becomes a major player in workplace health and productivity solutions with its acquisition of Shepell ∙ fgi 2010 Conversion to Morneau Shepell Inc. 2011 MSI acquires Jacques Lamarre & Associates (JLA) to expand EAP presence in Quebec 2012 MSI acquires US ‐ based SBC Systems to enhance benefits administration platform; and Mercer Canada’s pension and benefits outsourcing, business, which added 60 clients, including a number of major multi ‐ national companies to our roster Confidential – Not for Distribution 3
Four ‐ point strategy focused on growth and consistent returns 1. Growth and performance Sustain or exceed our historical organic revenue growth and profit - margins, augmented by strategic acquisitions 2. Short ‐ term and long ‐ term shareholder value Align capital structure and ongoing investments with stakeholder - expectations 3. People and execution Continue to develop our talent pool to deliver on long ‐ term strategic - plan 4. Alignment with stakeholders Ensure our integrated service capabilities are understood in order to - support our growth objectives Confidential – Not for Distribution 4
Essential to the financial security, health, and productivity of our clients and their people Advice to employers Answers to employees How can we reduce Will I have enough to retire? absenteeism? Will my family be looked after? How can we control Will I stay engaged and benefit costs? productive at work? How can we manage Will there be support to help me pension risk? and my family? How can we improve employee engagement, health and productivity? How can we improve our competitive position? Confidential – Not for Distribution 5
A balanced mix of services Sources of Revenue (2012) HEALTH & PRODUCTIVITY RETIREMENT SOLUTIONS SOLUTIONS Administrative Employee Solutions 29% Assistance Programs 36% Retirement and Benefit Consulting 24% Organizational Health Solutions 11% Confidential – Not for Distribution 6
A unique and integrated service offering HEALTH & PRODUCTIVITY RETIREMENT SOLUTIONS SOLUTIONS Delivering Integrative Solutions ADMINISTRATIVE SOLUTIONS HEALTH & PRODUCTIVITY SOLUTIONS ADMINISTRATIVE SOLUTIONS RETIREMENT SOLUTIONS • Health & Benefits Consulting • Defined Benefit Pension Administration • Pension & Actuarial Consulting • Employee Assistance Programs • Health & Welfare Plan Administration • Asset & Risk Management • Organizational Health Solutions • Defined Contribution Plan Administration • Governance & Compliance Support Confidential – Not for Distribution 7
Market trends drive demand for our services Increased complexity • Improving productivity and employee • engagement Rising health benefit costs • Pension shortfalls and reform • The future of retirement • Changing demographics and • technology Workplace mental health needs • Enabling companies to focus on their core businesses Confidential – Not for Distribution 8
A long history of growing recurring revenue $419 (million) (million) $365 Organic growth Organic growth $335 $332 Acquisition growth Acquisition growth Recurring revenue Recurring revenue $249 $147 99% 99% 99% 97% 98% 98% 2007 2008 2009 2010 2011 2012 Percentage indicates proportion of total revenue that is recurring from prior year Confidential – Not for Distribution 9
Q2 2013 Results: Revenue growth of 11% and EBITDA growth of 10% Revenue EBITDA +11% +10% 118.3 120 25 22.8 106.8 20.8 100 20 80 15 $ M 60 $ M 10 40 5 20 0 0 2012 2013 2012 2013 Payout ratio 77.5% 71.2% EBITDA margin 19.3% 19.4% Confidential – Not for Distribution 10
Year to date Q2 2013 Results: Revenue growth of 11% and EBITDA growth of 11% Revenue EBITDA +11% +11% 250 234.1 50 44.4 210.8 40.0 200 40 150 30 $ M $ M 100 20 50 10 0 0 2012 2013 2012 2013 Payout ratio 77.5% 71.2% EBITDA margin 19.0% 19.0% Confidential – Not for Distribution 11
Capital Structure • 47.9 million Common shares $640 million - 45% institutional, 10% management, 45% retail • Convertible debenture $ 75 million Due March 2017, 5.75% rate, $15 conversion price - • Bank Debt $177 million - Additional details on next page Confidential – Not for Distribution 12
Bank Debt Financing has flexibility Current Bank Debt Facility (matures Jan 5, 2015) Debt Available ($m) Q1 2013 Balance ($m) Term Loan 130 130.0 Revolving Debt Facility 100 46.6 TOTAL 230 176.6 Financial Covenants Bank Debt to EBITDA • ≤ 3.0:1 Currently 2.1: 1 - EBITDA to Interest Expense • Currently 6.1: 1 ≥ 3.0:1 - Confidential – Not for Distribution 13
A consistent total return to shareholders since our IPO in 2005 Cumulative total return Value of $100 invested on December 31, 2009 164.34 126.32 116.19 100.00 12/31/2009 12/31/2010 12/31/2012 12/31/2011 Total return from IPO (September 2005) to December 2012 Cumulative CAGR MSI 128.0% 14.1% S&P/TSX Comp 37.9% 5.3% Confidential – Not for Distribution 14
Investment summary • Significant recurring revenue base with strong margins, cash flow and low capital requirements • Consistent performance and returns to investors over time – current yield ~6% • Customer base of large, blue ‐ chip companies • Unique integrated provider of human resource services Confidential – Not for Distribution 15
Investor relations contacts: Michele Kumara 416.383.6463 mkumara@morneaushepell.com Alan Torrie atorrie@morneaushepell.com Scott Milligan smilligan@morneaushepell.com morneaushepell.com
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