Transcontinental Reports 2.9% Decrease in Q3 Revenues; Started Printing Toronto Star in July

MONTREAL — September 9, 2016 — Transcontinental Inc. announces its results for the third quarter of Fiscal 2016, which ended July 31, 2016.

"The third quarter results are consistent with our expectations and reflect difficult market realities, but they demonstrate that the actions we have taken mitigated the impact on our profitability," says François Olivier, president and CEO of TC Transcontinental. "These actions will continue to be beneficial in the next quarter. In our printing division, we continued to optimize our platform and successfully started printing the Toronto Star, which will fully contribute starting next quarter.

He continues, "Our Media Sector continued to face declining advertising revenues, but the efficiency measures implemented over the last few months are bearing fruit. As for our packaging division, we are deploying resources to develop sales and we are seeing encouraging progress. Furthermore, the recent acquisition of Robbie Manufacturing allows us to expand our network of flexible packaging plants in North America."

Olivier adds, "Finally, our excellent financial position and our significant cash flows will allow us to continue to invest prudently and to pursue our acquisitions in the packaging segment, our future growth area."

(Click on the chart to enlarge)

2016 Third Quarter Results
Revenues for the third quarter of 2016 went from $481.9 million to $467.8 million, a decrease of 2.9%. The contribution from acquisitions, notably those of Ultra Flex Packaging and Robbie Manufacturing, as well as the appreciation of the U.S. dollar against the Canadian dollar were unable to offset the decrease in revenues from existing operations. In the printing division, the decline in advertising spending continued to impact several segments. With respect to flyer printing for Canadian retailers, the number of flyers and the number of pages remained stable.

The decrease in revenues from existing operations was partially offset by the printing of the Toronto Star, which started in July 2016. In addition, the decline in the packaging division is mainly attributable to a reduction in demand from Transcontinental Capri's main customer and the loss of a customer as a result of its sale. In the Media Sector, the decline in advertising revenues continued to have an effect on local newspapers.

Adjusted operating earnings went from $71.6 million to $62.7 million in the third quarter of 2016, a decrease of 12.4%. The decline in adjusted operating earnings from existing operations is due to the decline in revenues mentioned above and the investments made to increase capacity and support the growth strategy of the packaging division. The decrease was partially offset by the contribution from acquisitions, the favorable exchange rate effect and the ongoing cost reduction initiatives in the printing division and the Media Sector.

Adjusted net earnings attributable to shareholders of the Corporation decreased 9.6%, from $48.8 million, or $0.62 per share, to $44.1 million, or $0.57 per share. This decrease is mainly due to lower adjusted operating earnings, partially offset by the reduction in adjusted income taxes and net financial expenses. Net earnings attributable to shareholders of the Corporation went from $43.3 million, or $0.55 per share, to $45.9 million, or $0.59 per share. This increase is mainly attributable to the favorable variation in restructuring and other costs (revenues), net of related taxes, and a reduction in income taxes, partially offset by lower adjusted operating earnings.

Other Highlights

• On May 30, 2016, TC Transcontinental announced the divestiture of its assets in the province of Saskatchewan. The transaction included the sale of its 13 local newspapers and associated web properties, as well as some commercial printing equipment and related book of business.
• On June 30, 2016, TC Transcontinental announced the acquisition of Robbie Manufacturing, a flexible packaging supplier located in Lenexa, Kansas. Robbie Manufacturing specializes in on-site packaging needs for grocery stores, shrink wrap packaging of multipack consumer goods, and packaging solutions for food processors. With more than 175 employees, it generated US$50 million in annual revenues in its most recent fiscal year.
• On July 28, 2016, the Corporation announced that it sold most of its commercial printing line of business operated from its plant in Dartmouth, Nova Scotia.

Highlights of the First Nine Months
For the first nine months of 2016, TC Transcontinental's revenues went from $1,462.1 million to $1,463.9 million. The acquisitions of Ultra Flex Packaging and, to a lesser extent, Robbie Manufacturing, as well as the appreciation of the U.S. dollar against the Canadian dollar more than offset the decrease in revenues from existing operations. In the printing division, the decline in advertising spending in several segments and the loss of a U.S. customer were partially offset by previously announced new contracts.

With respect to flyer printing for Canadian retailers, the number of flyers and number of pages remained stable. In the packaging division, the decline is attributable to a reduction in demand from Transcontinental Capri's main customer and the loss of a customer as a result of its sale. In the Media Sector, the decline in advertising revenues continued to have an effect on local newspapers. In addition, distribution activities were impacted by the exit of a retailer from the Canadian market in 2015.

Adjusted operating earnings went from $188.9 million to $176.0 million, a decrease of 6.8%. The decline in adjusted operating earnings from existing operations is due to the decline in revenues mentioned above and the investments made to increase capacity and support the growth strategy of the packaging division. The decrease was partially offset by the contribution from acquisitions, the favourable exchange rate effect and ongoing cost reduction initiatives in the printing division and the Media Sector.

Adjusted net earnings attributable to shareholders of the Corporation decreased 5.1%, from $126.1 million, or $1.61 per share, to $119.7 million, or $1.54 per share. This decrease is mainly due to lower adjusted operating earnings, partially offset by the reduction in adjusted income taxes and net financial expenses. Net earnings attributable to shareholders of the Corporation went from $162.4 million, or $2.08 per share, to $88.6 million, or $1.14 per share. This decrease is attributable to several unusual items totalling close to $90 million in 2015 and 2016, namely a gain on the sale of the consumer magazine publishing activities, a reversal of the provision for multi-employer pension plans, a gain on the sale of a building and an asset impairment charge. To a lesser extent, lower adjusted operating earnings also contributed to the decrease.

Outlook for 2016
Flyer printing volume is expected to remain relatively stable during the fourth quarter of 2016. In addition, the net impact of new contracts, including the contract to print the Toronto Star, will be more significant in the fourth quarter. Transcontinental Inc. will also continue to grow our in-store marketing product offering for retailers. However, these items should be more than offset by the impact of the decline in the advertising market on its traditional commercial, newspaper and magazine printing activities. With respect to adjusted operating earnings, the company's operational efficiency initiatives will also have a more significant contribution in the fourth quarter, which should improve the performance of this division.

In its flexible packaging division, the contribution from the acquisitions of Robbie Manufacturing and Ultra Flex Packaging will continue to have a positive impact during the fourth quarter. In addition, Transcontinental Inc. will continue developing new business opportunities and qualifying our products with customers to drive growth in this division. It expects that several of these opportunities will materialize starting in 2017. However, the reduced demand from Transcontinental Capri's main customer and the impact of the loss of a customer as a result of its sale will continue to create an organic decline within this business unit during the fourth quarter. Furthermore, the company's recent investments made to increase its capacity and support its development strategy will also have an unfavorable impact on adjusted operating earnings in the fourth quarter.

Within the Media Sector, the impact of the transformation of the advertising market should continue to affect its newspaper publishing activities. However, cost reductions initiatives should enable the company to reduce the impact of the advertising market on its adjusted operating earnings during the last quarter of 2016.

Lastly, Transcontinental Inc. expects to continue generating significant cash flows during the next quarters, and its excellent financial position should permit it to continue its transformation in the flexible packaging industry. Transcontinental Inc. will maintain its disciplined acquisition approach in this promising market in order to invest in quality assets that meet its strategic criteria.

Reconciliation of Non-IFRS Financial Measures
Financial information has been prepared in conformity with IFRS. However, certain measures used in this press release do not have any standardized meaning under IFRS and could be calculated differently by other companies. We believe that many readers analyze our results based on certain non-IFRS financial measures because such measures are normalized for evaluating the Corporation's operating performance. Management uses such non-IFRS financial information to evaluate the performance of its operations and managers. These measures should be considered in addition to, not as a substitute for or superior to, measures of financial performance prepared in accordance with IFRS.

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

(Click on the chart to enlarge)

Dividend
The Corporation's Board of Directors declared a quarterly dividend of $0.185 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on Oct. 20, 2016 to shareholders of record at the close of business on Oct. 3, 2016.

About Transcontinental Inc.
Canada's largest printer with operations in print, flexible packaging, publishing and digital media, TC Transcontinental's mission is to create products and services that allow businesses to attract, reach and retain their target customers.

Respect, teamwork, performance and innovation are strong values held by the Corporation and its employees. The Corporation's commitment to its stakeholders is to pursue its business and philanthropic activities in a responsible manner.

Transcontinental Inc. (TSX: TCL.A TCL.B), known as TC Transcontinental, has close to 8,000 employees in Canada and the United States, and revenues of C$2.0 billion in 2015.

Source: Transcontinental Inc.