TRANSCONTINENTAL GENERATES ORGANIC REVENUE AND PROFIT GROWTH FOR THE 5TH CONSECUTIVE QUARTER AND INCREASES ITS DIVIDEND BY 23%

Highlights

(in millions of dollars, except per share data) Q2-2011 Q2-2010 %
Revenues $514.7 $510.0 1%
Adjusted operating income 61.3 58.3 5%
Adjusted net income applicable to participating shares 40.1 34.1 18%
Per share 0.49 0.42 17%
Net income applicable to participating shares 33.0 67.0 (51%)
Per share 0.41 0.83 (51%)
  • Increased its dividend on participating shares by 23%, raising the annual dividend from $0.44 per share to $0.54 per share
  • Continued its digital transformation by partnering with Undertone®, a leading provider of video advertising solutions and the Canadian Booksellers Association for eBook solutions for retailers
  • Continued to optimize its printing network

 

MONTREAL, June 8, 2011 /CNW Telbec/ - Transcontinental's revenues increased 1% in the second quarter of 2011, from $510.0 million to $514.7 million. This increase was primarily due to a number of new contracts, most notably from the expanded relationship with The Globe and Mail. Excluding acquisitions, divestitures and closures, the impact of the exchange rates and the paper component variance, organic revenue growth was 3%, with all three sectors contributing. Similarly, adjusted operating income increased 5%, from $58.3 million to $61.3 million, representing the 8th consecutive quarter of year over year growth, while the adjusted operating income margin increased from 11.4% to 11.9%. This increase was mainly due to the contribution from new contracts coupled with the synergies associated with the use of our most productive assets and continued efficiency improvement initiatives in the Printing sector. It was partially compensated by continued strategic investments in the Media and Interactive sectors and more intense competitive pressures in some of our niches. Net income applicable to participating shares went from $67.0 million, or $0.83 per share, to $33.0 million, or $0.41 per share. This decrease is mainly due to a gain related to the discontinuance of direct mail operations in the United States in the second quarter of 2010. Excluding unusual items, adjusted net income applicable to participating shares increased 18%, from $34.1 million to $40.1 million. On a per share basis it increased 17%, from $0.42 to $0.49.

"I am pleased with our second quarter results, especially with the fact that we have generated organic revenue and profit growth for the fifth consecutive quarter in an industry in profound transformation. This demonstrates our ability to manage our operations efficiently, grow market share and transform our business to better respond to our customers' evolving needs," said François Olivier, President and Chief Executive Officer. "I strongly believe that our service offering including print, media and interactive solutions is unmatched in the marketplace and represents a unique multiplatform offering. Furthermore, our solid financial position provides us with the flexibility to pursue our transformation. Today we announced that we were increasing our dividend to participating shareholders by 23%, raising our annual dividend from $0.44 per share to $0.54 per share, reflecting our strong cash flow generating ability," concluded Mr. Olivier.

Other Financial Highlights

  • Free cash flow from operations increased significantly as cash flow from operations, before changes in non-cash operating items, increased 16%, from $65.8 million to $76.1 million and capital expenditures decreased, from $26.3 million to $8.4 million.
  • As at April 30, 2011, the ratio of net indebtedness (including the securitization program) to adjusted operating income before amortization was 1.66x, as compared to 1.82x as at October 31, 2010 and 2.08x as at April 30, 2010. The ratio of net indebtedness to adjusted operating income before amortization is slightly above the target of 1.5x set by management. Over the next few quarters, it should get closer to the target given the expected increase in cash flow generation and reduction in capital expenditures.
  • In the quarter, Transcontinental also prepaid and cancelled its $100 million term credit facility with Caisse de dépôt et placement du Québec and set up a new two-year $200 million securitization program. In addition, Transcontinental intends to prepay and cancel its five-year term loan of $50 million with SGF Rexfor Inc. next month.

For more detailed financial information, please see Management's Discussion and Analysis for the Second Quarter Ended April 30, 2011 at www.transcontinental.com, under "Investors."

Operating Highlights

  • Transcontinental continued to invest in new digital products and services. It partnered with Undertone®, a leading provider of display, high impact and video advertising solutions, in order to expand its digital advertising representation offering. This agreement enables Transcontinental to provide Canadian advertisers with a full range of digital video ad solutions, namely pre-roll advertising spots in over 25 million online video clips played every month in Canada. In addition, Transcontinental was selected as the official eBook solution provider for the Canadian Booksellers Association (CBA). This partnership will empower book retailers to create new revenue streams and bring more titles to market faster, with easy to use, intuitive software designed with online bookstores in mind.
  • Transcontinental continued to build on its existing assets. It announced that it will close two printing plants, one in Quebec and one in Manitoba, which will optimize its printing network further. In both cases, production will be transferred to larger plants which have benefitted from investments in the recent past. Transcontinental also continued to grow its newspaper publishing operations by acquiring the weekly newspaper Journal Nouvelles Hebdo in Dolbeau-Mistassini, Quebec and by launching five community newspapers in Quebec.
  • In the quarter, Transcontinental also concluded a four-year agreement with Canadian Tire, which will add about $30 to $40 million in incremental revenues on an annual basis, starting in January 2012. This new agreement makes Transcontinental Canadian Tire's leading provider of marketing solutions across Canada.
  • Transcontinental also launched its second Sustainability Report, based on the Global Reporting Initiative (GRI). The full web report, a downloadable pdf as well as a highlights brochure are all available at www.transcontinental-ecodev.com.

Highlights for the Six-month Period

In the first six months of fiscal 2011, Transcontinental's revenues increased 2%, from $1,021.6 million to $1,044.8 million. Excluding acquisitions, divestitures and closures, the impact of the exchange rates and the paper component variance, organic revenue growth was 3%, with all three sectors contributing. Similarly, adjusted operating income increased 5%, from $105.6 million to $111.1 million, while the adjusted operating income margin increased from 10.3% to 10.6%. Net income applicable to participating shares went from $93.2 million, or $1.16 per share, to $59.2 million, or $0.73 per share. Excluding unusual items, adjusted net income applicable to participating shares increased 14%, from $61.2 million to $70.0 million. On a per share basis it increased 13%, from $0.76 to $0.86.

Reconciliation of Non-GAAP Financial Measures

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.

The following table reconciles GAAP financial measures to non-GAAP financial measures.

Reconciliation of Non-GAAP financial measures
(unaudited)
                         
  Three months ended April 30   Six months ended April 30  
(in millions of dollars, except per share amounts)   2011     2010     2011     2010  
Net income applicable to participating shares $ 33.0   $ 67.0   $ 59.2   $ 93.2  
Dividends on preferred shares   1.7     1.7     3.4     3.4  
Net income from discontinued operations (after tax)     -     (34.7)       -     (32.9)  
Non-controlling interest   0.5       -     0.8     0.3  
Income taxes   7.6     10.7     13.3     15.5  
Discount on sale of accounts receivable     -     0.3       -     0.9  
Financial expenses   8.6     10.5     19.4     20.5  
Expenses related to long-term debt prepayment   5.8       -     5.8       -  
Impairment of assets and restructuring costs   4.1     2.8     9.2     4.7  
Adjusted operating income  $ 61.3   $ 58.3   $ 111.1   $ 105.6  
Net income applicable to participating shares $ 33.0   $ 67.0   $ 59.2   $ 93.2  
Net income from discontinued operations (after tax)     -     (34.7)       -     (32.9)  
Unusual adjustments to income taxes     -       -       -     (2.4)  
Expenses related to long-term debt prepayment (after tax)   4.2       -     4.2       -  
Impairment of assets and restructuring costs (after tax)   2.9     1.8     6.6     3.3  
Adjusted net income applicable to participating shares $ 40.1   $ 34.1   $ 70.0   $ 61.2  
Average number of participating shares outstanding   81.0     80.8     81.0     80.8  
Adjusted net income applicable to participating shares per share $ 0.49   $ 0.42   $ 0.86   $ 0.76  
Cash flow related to continuing operations $ 57.8   $ (57.4)   $ 111.8   $ (0.8)  
Changes in non-cash operating items   (18.3)       (123.2)     (33.6)       (132.8)  
Cash flow from continuing operations before changes in non-cash operating items $ 76.1   $ 65.8   $ 145.4   $ 132.0  

 

Dividend

At its June 8, 2011 meeting, the Corporation's Board of Directors declared a quarterly dividend of $0.135 per Class A Subordinate Voting Shares and Class B shares. This dividend is payable on July 22, 2011 to participating shareholders of record at the close of business on July 4, 2011. The Corporation thus increased the dividend per participating share by 23%, or $0.10 per share, raising the new annual dividend to $0.54 per share. This increase is a reflection of Transcontinental's strong cash flow position. It follows on the 22.2% increase which took effect on December 8, 2010 and 12.5% increase which took effect on March 17, 2010.

Furthermore, at the same meeting, the Board also declared a quarterly dividend of $0.4207 per share on cumulative 5-year rate reset first preferred shares, series D. This dividend is payable on July 15, 2011. On an annual basis, this represents a dividend of $1.6875 per preferred share.

Additional Information

Upon releasing its quarterly results, Transcontinental will hold a conference call for the financial community today at 4:15 p.m. 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 Nancy Bouffard, Director, Internal and External Communications of Transcontinental, at 514 954-2809.

Given the current strike by Canada Post, delivery of the financial statements, for the second quarter, to shareholders may be affected and may only be made when the postal system resumes in applicable regions. The financial statements have been posted electronically on SEDAR at www.sedar.com and on Transcontinental's website, in the investor relations section, at www.transcontinental.com. Shareholders can communicate directly with Caroline Hamel at 514 954-4000 to make arrangements for alternative delivery.

Profile

Transcontinental creates marketing products and services that allow businesses to attract, reach and retain their target customers. The Corporation is the largest printer in Canada and Mexico, and fourth-largest in North America. As the leading publisher of consumer magazines and French-language educational resources, and of community newspapers in Quebec and the Atlantic provinces, it is also one of Canada's top media groups. Thanks to a wide digital network of more than 300 websites, the company reaches over 10 million unique visitors per month in Canada. Transcontinental also offers interactive marketing products and services that use new communication platforms supported by marketing strategy and planning services, database analytics, premedia, e-flyers, email marketing, custom communications and mobile solutions.

Transcontinental (TSX: TCL.A, TCL.B, TCL.PR.D) has 10,500 employees in Canada, the United States and Mexico, and reported revenues of C$2.1 billion in 2010. For more information about the Corporation, please visit www.transcontinental.com.

Forward-looking Statements

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.

The forward-looking information in this release is based on current expectations and information available as at June 8, 2011. The Corporation's management disclaims any intention or obligation to update or revise any forward-looking statements unless otherwise required by the Securities Authorities.


  
 CONSOLIDATED STATEMENTS OF INCOME 
  unaudited 
                 
  Three months ended Six months ended
(in millions of dollars, except per share data) April 30 April 30
   2011   2010   2011   2010  
                  
Revenues    $ 514.7    $ 510.0   $ 1,044.8   $ 1,021.6  
Operating costs 362.1   356.2   751.7   729.9  
Selling, general and administrative expenses 59.8   62.8   118.3   119.6  
                  
Operating income before amortization, impairment of assets and restructuring costs 92.8   91.0   174.8   172.1  
Amortization  31.5   32.7   63.7   66.5  
Impairment of assets and restructuring costs 4.1   2.8   9.2   4.7  
                  
Operating income 57.2   55.5   101.9   100.9  
Financial expenses 8.6   10.5   19.4   20.5  
Expenses related to long-term debt prepayment 5.8   -   5.8   -  
Discount on sale of accounts receivable -   0.3   -   0.9  
                  
Income before income taxes and non-controlling interest 42.8   44.7   76.7   79.5  
Income taxes  7.6   10.7   13.3   15.5  
Non-controlling interest 0.5   -   0.8   0.3  
                  
Net income from continuing operations 34.7   34.0   62.6   63.7  
Net income from discontinued operations -   34.7   -   32.9  
Net income 34.7   68.7   62.6   96.6  
Dividends on preferred shares, net of related income taxes 1.7   1.7   3.4   3.4  
Net income applicable to participating shares  $ 33.0    $ 67.0    $ 59.2    $ 93.2  
                  
Net income per participating share - basic and diluted          
  Continuing operations  $ 0.41    $ 0.40    $ 0.73    $ 0.75  
  Discontinued operations -   0.43   -   0.41  
   $ 0.41    $ 0.83    $ 0.73    $ 1.16  
                  
Weighted average number of participating shares outstanding - basic (in millions) 81.0   80.8   81.0   80.8  
                  
Weighted average number of participating shares outstanding - diluted (in millions) 81.1   80.9   81.1   80.9  
                  
                  
               
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
 unaudited 
                
  Three months ended Six months ended
(in millions of dollars) April 30 April 30
  2011   2010   2011   2010  
                 
Net income  $ 34.7    $ 68.7    $ 62.6    $ 96.6  
                   
Other comprehensive income (loss):              
                 
Net change in fair value of derivatives designated as cash flow hedges, net of income taxes of $1.1 million and $1.7 million for the three-month and six-month periods ended April 30, 2011 ($1.5 million and $(0.4) million for the same periods in 2010) 3.8   (0.3)   3.6   (5.4)  
 
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 $(0.6) million and $(0.5) million for the three-month and six-month periods ended April 30, 2011 ($0.5 million and $0.6 million for the same periods in 2010) (2.5)   5.3   (1.1)   7.2  
Net change in fair value of derivatives designated as cash flow hedges 1.3   5.0   2.5   1.8  
                  
Net losses on translation of financial statements of self-sustaining foreign operations (6.1)   (2.0)   (8.6)   (2.9)  
Other comprehensive income (loss) (4.8)   3.0   (6.1)   (1.1)  
Comprehensive income  $ 29.9    $ 71.7    $ 56.5    $ 95.5  
                 
                 
                 
                 
 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS 
 unaudited 
                 
      Six months ended
(in millions of dollars)     April 30
          2011   2010  
                 
Balance, beginning of period        $ 784.0    $ 645.9  
Net income          62.6   96.6  
          846.6   742.5  
Dividends on participating shares       (17.8)   (13.8)  
Dividends on preferred shares         (3.4)   (3.6)  
Balance, end of period          $ 825.4    $ 725.1  
                 
                 
                 
                 
                
 CONSOLIDATED BALANCE SHEETS 
   
        unaudited   audited  
          As at   As at  
          April 30,   October 31,  
(in millions of dollars)         2011   2010  
               
Current assets              
  Cash and cash equivalents        $ -    $ 36.3  
  Accounts receivable         382.0   454.8  
  Income taxes receivable       25.6   19.7  
  Inventories         82.6   82.9  
  Prepaid expenses and other current assets   25.3   21.6  
  Future income taxes         16.5   17.7  
          532.0   633.0  
                 
Property, plant and equipment       852.2   918.3  
Property, plant and equipment held for sale   6.2   -  
Goodwill          682.1   678.1  
Intangible assets         174.9   179.1  
Future income taxes         142.3   146.7  
Other assets          34.0   39.5  
           2,423.7   2,594.7  
                  
Current liabilities                
  Bank overdraft          $ 0.7    $ -  
  Accounts payable and accrued liabilities   259.8   358.2  
  Income taxes payable         22.4   28.8  
  Deferred subscription revenues and deposits     32.2   38.6  
  Future income taxes         2.7   2.5  
  Current portion of long-term debt       17.2   17.8  
           335.0   445.9  
                 
Long-term debt         619.9   712.9  
Future income taxes         143.3   138.1  
Other liabilities         41.9   50.0  
           1,140.1   1,346.9  
                  
Non-controlling interest         0.8   0.8  
                  
Shareholders' equity                
  Share capital         478.8   478.6  
  Contributed surplus         14.0   13.7  
                 
  Retained earnings         825.4   784.0  
  Accumulated other comprehensive loss   (35.4)   (29.3)  
          790.0   754.7  
         1,282.8   1,247.0  
          2,423.7   2,594.7  
                 
               
                 
                 
                 
 CONSOLIDATED STATEMENTS OF CASH FLOWS 
 unaudited 
         
   Three months ended Six months ended  
(in millions of dollars) April 30 April 30  
  2011   2010   2011   2010  
                  
Operating activities                
  Net income  $ 34.7    $ 68.7    $ 62.6    $ 96.6  
  Less: Net income from discontinued operations -   34.7   -   32.9  
  Net income from continuing operations 34.7   34.0   62.6   63.7  
                 
  Items not affecting cash and cash equivalents          
    Amortization 38.7   38.7   77.2   78.8  
    Impairment of assets -   0.2   3.5   0.3  
    Gain on disposal of assets (0.3)   (0.2)   (0.3)   (0.6)  
    Future income taxes 0.2   (2.6)   0.5   (9.1)  
    Stock-based compensation 0.1   0.2   0.3   0.4  
    Other 2.7   (4.5)   1.6   (1.5)  
    Cash flow from operating activities before changes in non-cash operating items 76.1   65.8   145.4   132.0  
    Changes in non-cash operating items (18.3)   (123.2)   (33.6)   (132.8)  
    Cash flow related to operating activities of continuing operations 57.8   (57.4)   111.8   (0.8)  
    Cash flow related to operating activities of discontinued operations -   7.1   -   5.8  
  57.8   (50.3)   111.8   5.0  
                 
Investing activities                
  Business acquisitions (0.6)   (2.2)   (5.4)   (2.8)  
  Acquisitions of property, plant and equipment (8.4)   (26.3)   (29.1)   (89.0)  
  Disposals of property, plant and equipment 0.5   0.8   0.6   1.6  
  Increase in intangible assets and other assets (5.4)   (7.4)   (10.9)   (10.6)  
  Cash flow related to investing activities of continuing operations (13.9)   (35.1)   (44.8)   (100.8)  
  Cash flow related to investing activities of discontinued operations -   93.0   -   92.2  
  (13.9)   57.9   (44.8)   (8.6)  
                 
Financing activities                
  Increase in long-term debt -   4.8   -   37.7  
  Reimbursement of long-term debt (100.1)   (2.7)   (107.4)   (7.8)  
  Increase (decrease) in revolving term credit facility 24.0   (16.9)   31.2   (29.6)  
  Dividends on participating shares (8.9)   (7.3)   (17.8)   (13.8)  
  Dividends on preferred shares (1.7)   (1.7)   (3.4)   (3.6)  
  Issuance of participating shares 0.1   -   0.2   -  
  Bond forward contract -   -   (6.0)   -  
  Other  -   2.0   -   1.4  
  Cash flow related to financing activities of continuing operations (86.6)   (21.8)   (103.2)   (15.7)  
  Cash flow related to financing activities of discontinued operations -   (0.9)   -   (0.9)  
  (86.6)   (22.7)   (103.2)   (16.6)  
                 
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies (0.5)   -   (0.8)   0.1  
                 
Decrease in cash and cash equivalents (43.2)   (15.1)   (37.0)   (20.1)  
Cash and cash equivalents at beginning of period 42.5   29.7   36.3   34.7  
Cash and cash equivalents (bank overdraft) at end of period  $ (0.7)    $ 14.6    $ (0.7)    $ 14.6  
                 
Additional information                
  Interest paid  $ 11.6    $ 11.1    $ 19.5    $ 20.4  
  Income taxes paid  $ 16.6    $ 35.0    $ 23.1    $ 34.1  

SOURCE TRANSCONTINENTAL INC.

For further information:

Media

Nancy Bouffard
Director, Internal and External Communications
Transcontinental Inc.
Telephone :514 954-2809
nancy.bouffard@transcontinental.ca
www.transcontinental.com
Financial Community

Jennifer F. McCaughey
Senior Director, Investor Relations and Financial
Communications
Transcontinental Inc.
Telephone : 514 954-2821
jennifer.mccaughey@transcontinental.ca
www.transcontinental.com

 

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TRANSCONTINENTAL INC.

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