Transcontinental has strong first quarter & profitability improves for third
quarter in a row
- Growth of 41% in adjusted operating income before amortization despite
11% decrease in revenues or 2.7% on a comparable basis.
- Growth of 68% in adjusted net income applicable to participating
shares; on a per-participating share basis, adjusted net income
applicable to participating shares rose 63%, from $0.19 to $0.31.
- Substantial growth in net income applicable to participating shares,
from a loss of $6.4 million to a gain of $26.2 million; on a per-
participating share basis, net income applicable to participating
shares went from a loss of $0.08 to a gain of $0.32.
- Announcement by the Corporation of a 12.5% increase in its quarterly
dividend, to $0.09 per participating share.
- New digital communication platforms: upcoming launch of pre-shopping
site dealstreet.ca/publisac.ca and online business reputation
management tool on weblocal.ca.
- Continued to work on setting up hybrid newspaper and flyer printing
platform in Transcontinental's plants across Canada, to be fully
operational by late 2010.
- Corporation tables first Sustainability Report.
- As at January 31, 2010, the ratio of net indebtedness (including the
securitization program) to adjusted operating income before
amortization was 2.40 compared to 3.25 as at January 31, 2009.
- Agreement in February 2010 to sell substantially all of the assets of
Direct Mail Group in the U.S. to IWCO Direct, headquartered in
Minnesota, for net proceeds of more than US$100.0 million.
</pre>
<p/>
<p><span class="xn-location">MONTREAL</span>, <span class="xn-chron">March 17</span> /CNW Telbec/ - Transcontinental's profitability was up substantially in first quarter 2010 compared to first quarter 2009, for the third quarter in a row. Adjusted operating income before amortization rose 5% and 15% in the third and fourth quarters of 2009, and 41% in the first quarter of 2010. This growth is directly related to the measures implemented in 2009 to rationalize costs and improve efficiency, the reorganization and divestiture of certain operations and, to a certain extent, the stabilization in customer advertising spending. Revenues were down 11% in the quarter, due to the negative impact of the exchange rate, the divestiture or closure of plants and publications, and paper prices. Excluding these latter items and thanks to the contribution of the two contracts with Rogers Communications, which took effect in 2009, and the contract to print the <span class="xn-location">San Francisco</span> Chronicle which started in <span class="xn-chron">July 2009</span>, revenues were down only 2.7%.</p>
<p>"Our first quarter results show a marked increase in our profitability compared to the first quarter of 2009, and this is the third consecutive quarter in which it has improved," said François Olivier, President and Chief Executive Officer. "I attribute our strong performance to four main factors: continued customer confidence in our products and services, the reorganization and sale of some of our operations, the rationalization plan that we quickly implemented last year, and the concerted efforts by our employees to develop greater efficiency. Furthermore, we kept investing to strengthen promising traditional areas as well as our new digital communication platforms and to develop new marketing services to meet the emerging needs of our customers. Which all helps to build the new Transcontinental day by day!</p>
<p>"Transcontinental is now a more flexible organization, and one that is even more focused on its strategic assets and priorities," said <span class="xn-person">Mr. Olivier</span>. "With our enviable financial situation, strong brands, unique approach to combining print with digital, and investments, we will be able to keep providing our customers with custom and turnkey solutions, and take full advantage of opportunities as they arise in our markets."</p>
<p>As at <span class="xn-chron">January 31, 2010</span>, the ratio of net indebtedness (including the securitization program) to adjusted operating income before amortization was 2.40, versus 3.25 as at <span class="xn-chron">January 31, 2009</span>, due to the preferred share placement, an increase in adjusted operating income before amortization, and the rise of the Canadian versus the U.S. dollar. Furthermore, the Corporation has now achieved its objective, set in fiscal 2009, of maintaining this ratio within a target range of 2.00 to 2.50. Note that in the first quarter, the Corporation repaid and cancelled before maturity credit facilities of <span class="xn-money">$150 million</span> arranged with its banking syndicate in fiscal 2009.</p>
<p/>
<p>Financial Highlights</p>
<p/>
<p>In the first quarter ended <span class="xn-chron">January 31, 2010</span>, Transcontinental recorded consolidated revenues of <span class="xn-money">$559.3 million</span>, compared to <span class="xn-money">$625.4 million</span> in the first quarter 2009, down 11%. The decrease stems mainly from an unfavourable exchange rate effect of <span class="xn-money">$20.5 million</span>, the divestiture or closure of plants and publications, net of acquisitions, which accounted for <span class="xn-money">$18.2 million</span>, and the decline in paper prices which had a negative impact of <span class="xn-money">$10.4 million</span> on revenues. Excluding the divestitures or closures of publications and plants, the impact of the exchange rate and paper prices, and the acquisitions in fiscal 2009, the decline in revenues was only 2.7%.</p>
<p>Adjusted operating income before amortization rose from <span class="xn-money">$58.3 million to $82.4 million</span>, up a significant 41%, mainly due to the impact of the rationalization measures implemented in 2009 to combat the recession.</p>
<p>Net income applicable to participating shares rose substantially, from a loss of <span class="xn-money">$6.4 million</span> in first quarter 2009 to a gain of <span class="xn-money">$26.2 million</span>; on a per-share basis, it went from a loss of <span class="xn-money">$0.08</span> to a gain of <span class="xn-money">$0.32</span>. Adjusted net income applicable to participating shares, which does not take into account unusual items related to asset impairment, restructuring costs and income tax adjustments, also grew substantially, from <span class="xn-money">$15.1 million to $25.3 million</span>; on a per-share basis, net income applicable to participating shares rose from <span class="xn-money">$0.19 to $0.31</span>.</p>
<p/>
<p>For more detailed financial information, please see Management's Discussion and Analysis for the First Quarter ended <span class="xn-chron">January 31, 2010</span> at <a href="http://www.transcontinental.com">www.transcontinental.com</a>, under "Investors."</p>
<p/>
<p>Operating Highlights</p>
<p/>
<p>Below are the main operating highlights to date.</p>
<p/>
<pre>
- Transcontinental's growth is largely based on its ability to provide
its customers with advertising personalization services and digital
communication platforms that meet their new business needs. This is the
exact focus of the Marketing Communications Sector, which was created
early in fiscal 2009. The forward momentum of Marketing Communications
has continued in the first quarter with the signing of several
promising agreements with major retail brands in Canada. These
agreements cover our advertising personalization services, which
include personalized emails, data analytics and creation of custom
content. Also, in March 2010, we launch the pre-shopping platform
dealstreet.ca for English-speaking consumers, and publisac.ca for
French-speaking consumers, in concert with the Publisac team. This
solution allows our retail clients to optimize the return on their
advertising dollar and consumers to compare and choose the best deals
on the Internet.
- The digital development of brands in the Media Sector is going well.
For our magazines, for instance, revenues related to the Internet and
wireless grew over 30% in the first quarter. In recent developments,
weblocal.ca now offers local businesses the first online reputation
management tool in Canada. This application will help companies probe,
gather and analyze information about themselves on the Internet and in
social networks, and adjust their marketing strategy accordingly.
- As a printer, Transcontinental has always stood out for its
manufacturing efficiency, technological innovation and comprehensive
offering. Its technological superiority attracts major new clients year
after year. Customers include Shoppers Drug Mart-Pharmaprix, Rogers
Communications and the San Francisco Chronicle, now being printed at
our new plant in Fremont, California. In this context, in the first
quarter Transcontinental started to implement a unique hybrid newspaper
and flyer printing platform through its network of plants across
Canada. This hybrid platform, a first in Canada, comes under an 18-year
and $1.7 billion contract with The Globe and Mail that will start in
early fiscal 2011. It will make it possible for The Globe and Mail to
print on glossy paper with colour on every page, and retail clients
will have access to the latest printing technology. This highly
promising project will require a total investment of about
$175 million.
- At its annual meeting of shareholders on February 18, 2010,
Transcontinental officially tabled its first Sustainability Report
based on the Global Reporting Initiative (GRI), an international
standard for sustainability methodology. Already recognized as a leader
in environmental protection and as an organization that is involved in
the communities in which it operates, Transcontinental plans to broaden
its leadership to include sustainable development, which is both a
continuation and expansion of the Corporation's commitment to the
environment. The report is available on the home page of the
Transcontinental website.
- In light of the major structural changes in our industry and the
inevitable consolidation underway in a number of segments, on
February 10, 2010, Transcontinental announced that it had signed an
agreement to sell most of its direct mail assets in the United States
to IWCO Direct, a company headquartered in Minnesota, USA. The
transaction, which must be approved by regulators, will generate net
proceeds of more than US$100.0 million and is expected to close in our
second quarter. This decision reflects management's plan to focus its
energies on core operations and to emphasize the development of its
digital products and services. Note that Transcontinental remains the
leader in direct marketing in Canada.
</pre>
<p/>
<p>Reconciliation of Non-GAAP Financial Measures</p>
<p/>
<p>Financial data have been prepared in conformity with Canadian Generally Accepted Accounting Principles (GAAP). However, certain measures used in this press release do not have any standardized meaning under GAAP and could be calculated differently by other companies. The Corporation believes that certain non-GAAP financial measures, when presented in conjunction with comparable GAAP financial measures, are useful to investors and other readers because that information is an appropriate measure for evaluating the Corporation's operating performance. Internally, the Corporation uses this non-GAAP financial information as an indicator of business performance, and evaluates management's effectiveness with specific reference to these indicators. These measures should be considered in addition to, not as a substitute for or superior to, measures of financial performance prepared in accordance with GAAP.</p>
<p>The following table reconciles GAAP financial measures to non-GAAP financial measures.</p>
<p/>
<pre>
Reconciliation of non-GAAP financial measures
(unaudited)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(in millions of dollars, except per share
amounts) 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss) applicable to participating
shares $ 26.2 $ (6.4)
Dividends on preferred shares 1.7 -
Non-controlling interest 0.3 0.3
Income taxes 4.1 (9.0)
Discount on sale of accounts receivable 0.6 1.7
Financial expenses 10.1 7.4
Impairment of assets and restructuring costs 2.2 31.3
-------------------------------------------------------------------------
Adjusted operating income 45.2 25.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization 37.2 33.0
-------------------------------------------------------------------------
Adjusted operating income before amortization $ 82.4 $ 58.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss) applicable to participating
shares $ 26.2 $ (6.4)
Impairment of assets and restructuring
costs (after tax) 1.5 21.5
Unusual adjustments to income taxes (2.4) -
-------------------------------------------------------------------------
Adjusted net income applicable to participating
shares 25.3 15.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of participating shares
outstanding 80.8 80.8
-------------------------------------------------------------------------
Adjusted net income applicable to participating
shares per share $ 0.31 $ 0.19
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flow related to operating activities $ 55.3 $ 9.5
Changes in non-cash operating items (7.8) (35.0)
-------------------------------------------------------------------------
Cash flow from operating activities before
changes in non-cash operating items $ 63.1 $ 44.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Long-term debt $ 826.4 $ 672.1
Current portion of long-term debt 7.4 179.1
Cash and cash equivalents (29.7) (25.2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net indebtedness $ 804.1 $ 826.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</pre>
<p/>
<p>Dividend</p>
<p/>
<p>At its <span class="xn-chron">March 17, 2010</span> meeting, the Corporation's Board of Directors declared a quarterly dividend of <span class="xn-money">$0.09</span> per participating share on Class A Subordinate Voting Shares and Class B shares which represents an increase of 12.5% over the dividend paid in the previous quarter. These dividends are payable on <span class="xn-chron">April 30, 2010</span> to participating shareholders of record at the close of business on <span class="xn-chron">April 12, 2010</span>. On an annual basis, this represents a dividend of <span class="xn-money">$0.36</span> per participating share.</p>
<p>Furthermore, at the same meeting, the Board also declared a quarterly dividend of $0.4161 per share on cumulative 5-year rate reset first preferred shares, series D. These dividends are payable on <span class="xn-chron">April 15, 2010</span>. On an annual basis, this represents a dividend of $1.6875 per preferred share.</p>
<p/>
<p>Additional Information</p>
<p/>
<p>Upon releasing its quarterly results, Transcontinental will hold a conference call for the financial community today at <span class="xn-chron">4:15 p.m. (ET</span>). Media may hear the call in listen-only mode or tune in to the simultaneous audio broadcast on the Corporation's Web site, which will then be archived for 30 days. For media requests for information or interviews, please contact Sylvain Morissette, Vice President, Corporate Communications of Transcontinental, at 514-954-4007.</p>
<p/>
<p>Profile</p>
<p/>
<p>Transcontinental provides printing, publishing and marketing services that deliver exceptional value to its clients and provide a unique, integrated platform for them to reach and retain their target audiences. Transcontinental is the largest printer in <span class="xn-location">Canada</span> and in <span class="xn-location">Mexico</span>, and fourth-largest in <span class="xn-location">North America</span>. It is also the country's leading publisher of consumer magazines and French-language educational resources, the second-largest community newspaper publisher, and its digital platform delivers unique content through more than 120 Web sites. Its Marketing Communications Sector provides advertising services and marketing products using new communications platforms supported by database analytics, premedia, e-flyers, email marketing, and custom communications. Transcontinental is a company that seeks growth with a culture of continuous improvement and financial discipline, whose values, including respect, innovation and integrity, are central to its operation.</p>
<p>Transcontinental (TSX: TCL.A, TCL.B, TCL.PR.D) has approximately 12,500 employees in <span class="xn-location">Canada</span>, the <span class="xn-location">United States</span> and <span class="xn-location">Mexico</span>, and reported revenue of C$2.4 billion in 2009. For more information about the Corporation, please visit <a href="http://www.transcontinental.com">www.transcontinental.com</a>.</p>
<p/>
<p>Note: This press release contains certain forward-looking statements concerning the future performance of the Corporation. Such statements, based on the current expectations of management, inherently involve numerous risks and uncertainties, known and unknown. We caution that all forward-looking information is inherently uncertain and actual results may differ materially from the assumptions, estimates or expectations reflected or contained in the forward-looking information, and that actual future performance will be affected by a number of factors, many of which are beyond the Corporation's control, including, but not limited to, the economic situation, structural changes in its industries, exchange rate, availability of capital, energy costs, increased competition, as well as the Corporation's capacity to implement its strategic plan and rationalization plan, engage in strategic transactions and integrate acquisitions into its activities. The risks, uncertainties and other factors that could influence actual results are described in the Management's Discussion and Analysis and Annual Information Form.</p>
<p>The forward-looking information in this release is based on current expectations and information available as of <span class="xn-chron">March 17, 2010</span>. The Corporation's management disclaims any intention or obligation to update or revise any forward-looking statements unless otherwise required by the Securities Authorities.</p>
<p/>
<p/>
<pre>
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
unaudited
Three months ended
(in millions of dollars, except per share data) January 31
-------------------------------------------------------------------------
2010 2009
-------------------------------------------------------------------------
Revenues $ 559.3 $ 625.4
Operating costs 417.1 493.2
Selling, general and administrative expenses 59.8 73.9
-------------------------------------------------------------------------
Operating income before amortization, impairment
of assets and restructuring costs 82.4 58.3
Amortization 37.2 33.0
Impairment of assets and restructuring costs 2.2 31.3
-------------------------------------------------------------------------
Operating income (loss) 43.0 (6.0)
Financial expenses 10.1 7.4
Discount on sale of accounts receivable 0.6 1.7
-------------------------------------------------------------------------
Income (loss) before income taxes and
non-controlling interest 32.3 (15.1)
Income taxes (recovered) 4.1 (9.0)
Non-controlling interest 0.3 0.3
-------------------------------------------------------------------------
Net income (loss) 27.9 (6.4)
Dividends on preferred shares, net of related
income taxes 1.7 -
-------------------------------------------------------------------------
Net income (loss) applicable to participating
shares $ 26.2 $ (6.4)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss) per share - basic $ 0.32 $ (0.08)
-------------------------------------------------------------------------
Net income (loss) per share - diluted $ 0.32 $ (0.08)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of participating shares
outstanding (in millions) 80.8 80.8
-------------------------------------------------------------------------
The notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
unaudited
Three months ended
(in millions of dollars) January 31
-------------------------------------------------------------------------
2010 2009
-------------------------------------------------------------------------
Net income (loss) $ 27.9 $ (6.4)
Other comprehensive income (loss):
Unrealized net change in fair value of
derivatives designated as cash flow hedges,
net of income taxes of $(1.9) million
($(1.8) million in 2009) (5.1) (5.8)
Reclassification adjustments for net change
in fair value of derivatives designated as
cash flow hedges in prior periods,
transferred to net income in the current
period, net of income taxes of $0.7 million
($1.5 million in 2009) 1.9 3.3
-------------------------------------------------------------------------
Net change in fair value of derivatives
designated as cash flow hedges (3.2) (2.5)
Unrealized net losses on translation of
financial statements of self-sustaining
foreign operations (0.9) (5.4)
-------------------------------------------------------------------------
Other comprehensive loss (4.1) (7.9)
-------------------------------------------------------------------------
Comprehensive income (loss) $ 23.8 $ (14.3)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
unaudited
Three months ended
(in millions of dollars) January 31
-------------------------------------------------------------------------
2010 2009
-------------------------------------------------------------------------
Balance, beginning of period $ 645.9 $ 753.5
Net income (loss) 27.9 (6.4)
-------------------------------------------------------------------------
673.8 747.1
Dividends on participating shares (6.5) (6.5)
Dividends on preferred shares (1.9) -
-------------------------------------------------------------------------
Balance, end of period $ 665.4 $ 740.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The notes are an integral part of the consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
unaudited
-------------------------------------------------------------------------
As at As at
January 31, October 31,
(in millions of dollars) 2010 2009
-------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 29.7 $ 34.7
Accounts receivable 294.1 330.7
Income taxes receivable 15.2 4.1
Inventories 76.2 78.2
Prepaid expenses and other current assets 22.6 23.0
Future income taxes 10.2 11.9
-------------------------------------------------------------------------
448.0 482.6
Property, plant and equipment 983.8 972.0
Goodwill 670.7 673.4
Intangible assets 188.0 187.5
Future income taxes 169.8 165.8
Other assets 57.9 68.4
-------------------------------------------------------------------------
$ 2,518.2 $ 2,549.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Current liabilities
Accounts payable and accrued liabilities $ 299.1 $ 378.3
Income taxes payable 48.2 26.8
Deferred subscription revenues and deposits 47.1 43.7
Future income taxes 2.1 0.5
Current portion of long-term debt 7.4 7.8
-------------------------------------------------------------------------
403.9 457.1
Long-term debt 826.4 819.0
Future income taxes 104.7 110.0
Other liabilities 52.4 48.3
-------------------------------------------------------------------------
1,387.4 1,434.4
-------------------------------------------------------------------------
Non-controlling interest 0.3 0.1
-------------------------------------------------------------------------
Commitments
Shareholders' equity
Share capital 476.2 476.5
Contributed surplus 13.1 12.9
Retained earnings 665.4 645.9
Accumulated other comprehensive loss (24.2) (20.1)
-------------------------------------------------------------------------
641.2 625.8
-------------------------------------------------------------------------
1,130.5 1,115.2
-------------------------------------------------------------------------
$ 2,518.2 $ 2,549.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
unaudited
Three months ended
(in millions of dollars) January 31
-------------------------------------------------------------------------
2010 2009
-------------------------------------------------------------------------
Operating activities
Net income (loss) $ 27.9 $ (6.4)
Items not affecting cash and cash equivalents
Amortization 43.5 37.9
Impairment of assets 0.1 18.8
Gain on disposal of assets (0.4) (0.1)
Future income taxes (7.3) (14.0)
Net change in accrued pension benefit asset
and liability (2.0) (2.4)
Stock-based compensation 0.5 0.2
Other 0.8 10.5
-------------------------------------------------------------------------
Cash flow from operating activities before
changes in non-cash operating items 63.1 44.5
Changes in non-cash operating items (7.8) (35.0)
-------------------------------------------------------------------------
Cash flow related to operating activities 55.3 9.5
-------------------------------------------------------------------------
Investing activities
Business acquisitions (0.6) (11.7)
Acquisitions of property, plant and equipment (63.5) (98.7)
Disposals of property, plant and equipment 0.8 0.1
Increase in intangible assets and other assets (3.2) (2.2)
-------------------------------------------------------------------------
Cash flow related to investing activities (66.5) (112.5)
-------------------------------------------------------------------------
Financing activities
Increase in long-term debt 32.9 -
Reimbursement of long-term debt (5.1) (1.9)
Increase (decrease) in revolving term credit
facility (12.7) 46.8
Dividends on participating shares (6.5) (6.5)
Dividends on preferred shares (1.9) -
Issuance of participating shares 0.1 -
Other (0.7) (0.5)
-------------------------------------------------------------------------
Cash flow related to financing activities 6.1 37.9
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents denominated in foreign currencies 0.1 (0.4)
-------------------------------------------------------------------------
Decrease in cash and cash equivalents (5.0) (65.5)
Cash and cash equivalents at beginning of period 34.7 90.7
-------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 29.7 $ 25.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additional information
Interest paid $ 9.3 $ 11.5
Income taxes paid (recovered) $ (0.9) $ 19.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For further information: Media: Sylvain Morissette, Vice President, Corporate Communications, Transcontinental Inc., (514) 954-4007, [email protected]; www.transcontinental.com; Financial Community: Jennifer F. McCaughey, Director, Investor Relations, Transcontinental Inc., (514) 954-2821, [email protected]
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