Investor presentation Alan Torrie, President & CEO; Scott Milligan, CFO | November 2014 Business. Needs. People. Health • Benefits • Employee Assistance • Retirement Health • Benefits • Employee Assistance • Retirement Confidential – Not for Distribution
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 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. 2 Confidential – Not for Distribution
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 Morneau forms a strategic alliance with Coopers & Lybrand and absorbs its pension consulting 1992 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 completes an IPO and becomes an income trust: Morneau Sobeco Income Fund 2006 MSIF expands its western Canada presence by acquiring Heath Benefits Consulting MSIF enhances its Ontario presence by acquiring the defined benefit pension business of Cowan 2008 Benefits Consulting; MSIF adds further depth in western Canada by acquiring the actuarial firm of Leong & Associates Morneau Sobeco Income Fund becomes a major player in workplace health and productivity 2008 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 MSI acquires US ‐ based SBC Systems to enhance benefits administration platform; and Mercer 2012 Canada’s pension and benefits outsourcing, business, which added a number of major multi ‐ national companies to our roster MSI acquires Dion Durrell’s workers’ compensation business to strengthen Organizational Health 2013 Solutions practice 2014 MSI acquires Groupe AST, the largest workers’ compensation business in Quebec 3 Confidential – Not for Distribution
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. People Being an employer of choice and developing capacity and capability within our leadership and broader talent pool 3. Client and brand management Build strong integrative relationships with our clients, and a strong brand presence with our target audience 4. Shareholder value Align capital structure and ongoing investments with stakeholder expectations 4 Confidential – Not for Distribution
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 How can we control after? benefit costs? Will I stay engaged and How can we manage productive at work? pension risk? Will there be support to help How can we me and my family? improve employee engagement, health and productivity? How can we improve our competitive position? 5 Confidential – Not for Distribution
A balanced mix of services Sources of revenue (2013) 34% 33% Administrative Employee Assistance Solutions Programs 22% 11% Retirement and Absence Management Benefit Consulting Solutions 6 Confidential – Not for Distribution
Market trends drive demand for our services Enabling companies Increased complexity to focus on their core Improving productivity and businesses employee engagement Rising health benefit costs Pension shortfalls and reform The future of retirement Changing demographics and technology Workplace mental health needs 7 Confidential – Not for Distribution
Large and growing blue chip client base 8 Confidential – Not for Distribution
A long history of growing recurring revenue 500 $471 450 $419 400 $365 $335 $332 350 300 (million) $249 Acquisition Growth 250 Organic Growth 200 Recurring Revenue $147 150 100 50 98% 99% 99% 99% 97% 98% 98% 0 2007 2008 2009 2010 2011 2012 2013 Percentage indicates proportion of total revenue that is recurring from prior year 9 Confidential – Not for Distribution
Q3 2014 results Revenue and EBITDA growth of 12% Revenue EBITDA +12% 140 30 132.7 +12% 118.5 120 24.4 25 21.9 100 ($million) ($million) 20 80 15 60 10 40 5 20 0 0 2013 2014 2013 2014 Payout EBITDA 73.2% 70.6% 18.5% 18.4% ratio margin 10 Confidential – Not for Distribution
Q3 YTD results Revenue and EBITDA growth of 15% Revenue EBITDA +15% 450.0 90 +15% 404.7 400.0 80 76.3 352.6 350.0 70 66.3 ($million) ($million) 300.0 60 250.0 50 200.0 40 150.0 30 100.0 20 50.0 10 ‐ 0 2013 2014 2013 2014 Payout EBITDA 73.2% 70.6% 18.8% 18.9% ratio margin 11 Confidential – Not for Distribution
Capital structure 47.9 million common shares $800 million 45% institutional, 10% management, 45% retail Convertible debenture $75 million Due March 2017, 5.75% rate, $15 conversion price Bank debt $230 million Additional details on next page 12 Confidential – Not for Distribution
Bank debt financing has flexibility Current bank debt facility (matures Nov 29, 2017) Debt available Q2 2014 Balance ($m) $250 million $230 million Revolving debt facility Financial covenants Bank debt to EBITDA Currently 2.3: 1 ≤ 3.0:1 EBITDA to interest expense Currently 6.8: 1 ≥ 3.0:1 13 Confidential – Not for Distribution
A consistent total return to shareholders since our IPO in 2005 Cumulative total return Value of $100 invested on January 1, 2011 250 197 182 200 141 150 109 20% CAGR total return 100 100 since the beginning of 2011 50 0 1/1/2011 1/1/2012 1/1/2013 1/1/2014 9/30/2014 Total return from IPO (September 2005) to September 2014 Cumulative CAGR 217.3% 13.7% MSI 75.5% 6.4% S&P/TSX Comp 14 Confidential – Not for Distribution
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 ~5% Customer base of large, blue ‐ chip companies Unique integrated provider of human resource services 15 Confidential – Not for Distribution
Investor Relations contacts: Michele Kumara Alan Torrie Scott Milligan mkumara@morneaushepell.com atorrie@morneaushepell.com smilligan@morneaushepell.com 416.383.6463 16 Confidential – Not for Distribution
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