Investor presentation Alan Torrie, President & Chief Executive - - PowerPoint PPT Presentation

Alan Torrie, President & Chief Executive Officer Scott Milligan, Chief Financial Officer September 2013

Investor presentation

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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 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

• bligation to comment on analyses, expectations, or statements made by third parties in respect of the firm, its

financial or operating results, or its securities.

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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 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

• f 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

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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

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Essential to the financial security, health, and productivity of our clients and their people

Advice to employers

How can we reduce absenteeism? How can we control benefit costs? How can we manage pension risk? How can we improve employee engagement, health and productivity? How can we improve our competitive position?

Answers to employees

Will I have enough to retire? Will my family be looked after? Will I stay engaged and productive at work? Will there be support to help me and my family?

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A balanced mix of services

RETIREMENT SOLUTIONS HEALTH & PRODUCTIVITY SOLUTIONS

Administrative Solutions 29% Employee Assistance Programs 36% Retirement and Benefit Consulting 24% Organizational Health Solutions 11%

Sources of Revenue (2012)

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A unique and integrated service offering

• Health & Benefits Consulting
• Employee Assistance Programs
• Organizational Health Solutions

ADMINISTRATIVE SOLUTIONS HEALTH & PRODUCTIVITY SOLUTIONS

• Defined Benefit Pension Administration
• Health & Welfare Plan Administration
• Defined Contribution Plan Administration

RETIREMENT SOLUTIONS

• Pension & Actuarial Consulting
• Asset & Risk Management
• Governance & Compliance Support

Delivering Integrative Solutions

ADMINISTRATIVE SOLUTIONS RETIREMENT SOLUTIONS HEALTH & PRODUCTIVITY SOLUTIONS

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Confidential – Not for Distribution

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

• n their core businesses

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A long history of growing recurring revenue

Percentage indicates proportion of total revenue that is recurring from prior year 2011

$419

2012

$365 $249

2007

$147

2010

$335

2009

$332

2008

(million)

Recurring revenue Acquisition growth Organic growth

(million)

Recurring revenue Acquisition growth Organic growth 99% 99% 99% 97% 98% 98%

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Q2 2013 Results: Revenue growth of 11% and EBITDA growth

• f 10%

118.3 106.8 20 40 60 80 100 120 +11% 2013 2012 $ M

Revenue

22.8 20.8 5 10 15 20 25 $ M +10% 2013 2012

EBITDA

EBITDA margin 19.3% 19.4% Payout ratio 77.5% 71.2%

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Year to date Q2 2013 Results: Revenue growth of 11% and EBITDA growth of 11%

234.1 210.8 50 100 150 200 250 +11% 2013 2012 $ M

Revenue

44.4 40.0 10 20 30 40 50 $ M +11% 2013 2012

EBITDA

EBITDA margin 19.0% 19.0% Payout ratio 77.5% 71.2%

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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

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Bank Debt Financing has flexibility

• Bank Debt to EBITDA
• ≤ 3.0:1

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 Currently 2.1: 1

• EBITDA to Interest Expense
• ≥ 3.0:1

Currently 6.1: 1

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Total return from IPO (September 2005) to December 2012 Cumulative CAGR MSI 128.0% 14.1% S&P/TSX Comp 37.9% 5.3%

A consistent total return to shareholders since

• ur IPO in 2005

Cumulative total return Value of $100 invested on December 31, 2009

12/31/2009 12/31/2010 12/31/2012

100.00 116.19 126.32

12/31/2011

164.34

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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

Investor relations contacts:

Michele Kumara

416.383.6463 mkumara@morneaushepell.com

Alan Torrie

atorrie@morneaushepell.com

Scott Milligan

smilligan@morneaushepell.com

morneaushepell.com