Transcontinental Sees Strong Improvement in ProfitabilityJune 8, 2010
Net income applicable to participating shares was up $211.3 million, from a loss of $144.3 million in second quarter 2009 to a gain of $67.0 million in 2010. This increase is primarily due to impairment of goodwill and intangible assets and impairment of assets and restructuring costs in second quarter 2009, combined with a gain on the sale of almost all the assets of the Direct Mail Group in the United States on April 1, 2010 and the increase in adjusted operating income in 2010. On a per-participating share basis, net income applicable to participating shares went from a loss of $1.79 to a gain of $0.83.
Adjusted net income applicable to participating shares was up 14%, from $30.0 million in 2009 to $34.3 million in 2010. On a per-participating share basis, adjusted net income applicable to participating shares also increased 14%, from $0.37 to $0.42.
Lastly, adjusted operating income margin before amortization was up appreciably, from 14.5% in 2009 to 17.8% in 2010. The increase is mainly due to the full impact of the rationalization measures implemented in 2009 and continuous improvement in operational efficiency.
In the first six months of fiscal 2010, consolidated revenues were down 7%, from $1.10 billion to $1.02 billion, while adjusted operating income before amortization grew 26%, from $136.2 million to $172.1 million. Net income applicable to participating shares went from a loss of $150.7 million in the first half of 2009 to a gain of $93.2 million in the same period in 2010; on a per-participating share basis, net income applicable to participating shares went from a loss of $1.87 to a gain of $1.16. Adjusted net income applicable to participating shares rose 24%, from $49.3 million to $61.2 million; on a per-participating share basis, adjusted net income applicable to participating shares also rose 25%, from $0.61 to $0.76.
For more detailed financial information, please see Management’s Discussion and Analysis for the Second Quarter ended April 30, 2010 at www.transcontinental.com, under “Investors.”
Below are the main operating highlights to date.
• In response to growing demand from its customers, Transcontinental enhanced its marketing communications solutions that use new media and digital platforms by acquiring LIPSO Systems on April 30, 2010. LIPSO is a Canadian leader in aggregated mobile solutions encompassing connectivity, transaction management and applications development. This acquisition allows Transcontinental to add several new key services to its marketing communications offering, including cell phone bar-code reading, electronic couponing for retail sales and electronic ticketing for transportation and entertainment.
• In the second quarter, the Media Sector furthered the strategic development of its solutions for local communities in Canada by officially launching the pre-shopping websites dealstreet.ca and publisac.ca, which distribute thousands of geographically specific retail discounts to consumers every day. The business search site, weblocal.ca, also launched the first online reputation management tool for advertisers who subscribe to its services.
• Providing solutions for local communities is an important area of growth for Transcontinental. Thus, four new community papers and their websites were launched in Quebec: Rive-Sud Express.ca, which serves Longueuil, Brossard and Saint-Lambert on Montreal’s South Shore; Point de vue Sainte-Agathe and Point de vue Mont-Tremblant, in the Laurentians; and Abitibi Express in Val-d’Or and Amos in Abitibi. These launches fulfill consumer demand for Transcontinental to introduce a local and regional paper that would include, among other things, input from “citizen contributors.” These new papers, combined with new digital services, will also bring the benefits of enhanced media tools to local businesses and their respective markets.
• In print media, Transcontinental launched the first business-oriented French-language bookzine in Canada: PREMIUM – l’intelligence en affaires. This high-end bi-monthly publication is aimed at business executives and combines the best of book and magazine. It rounds out Transcontinental’s portfolio of business publications.
• With its innovations and state-of-the-art equipment, Transcontinental is increasing its market share in newspaper and flyer printing. In recent months several new customers have been added to its Canada-wide flyer printing and distribution network. In the United States, the new plant in Fremont, California, where printing of the San Francisco Chronicle is running smoothly, has won a new customer, a publisher of community newspapers in the San Jose area; the plant started printing one of these newspapers in April. It is also business growth that is driving the development of a hybrid platform to print newspapers and flyers being set up under a $1.7 billion, 18-year contract with The Globe and Mail, a first in Canada. The platform will be operational before the end of 2010.
• After releasing its first Sustainability Report based on Global Reporting Initiative (GRI) standards in February 2010, Transcontinental continued to affirm its leadership in sustainable development. In the second quarter 2010, its Constructo business unit launched voirvert.ca, the first French-language website dedicated entirely to sustainable and environmental building practices in Quebec. This site is specifically designed to meet the needs of professionals and managers working in construction. Transcontinental’s commitment to sustainable development also earned it the annual Best of Show award for the most environmentally progressive printing company overall. It received this honour, along with the Gold for “Most Environmentally Progressive Printer in Canada,” 500+ employees, at the fifth annual Environmental Printing Awards organized by PrintAction magazine. Lastly, in the wake of the recent historic agreement to conserve the boreal forest, Transcontinental’s paper purchasing policy was recognized for its major contribution to preservation efforts. The boreal forest agreement, signed by 21 major forest companies and nine environmental groups, seeks to preserve a large area of the boreal forest, to protect the endangered woodland caribou, and to apply the highest environmental standards to forest management.
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.
On April 1, 2010, having met U.S. regulatory requirements, Transcontinental announced that it had concluded the sale of almost all of its direct mail operations in the United States to IWCO Direct, a U.S. company headquartered in Minnesota. The agreement to sell the assets was announced on February 10, 2010, subject to regulators’ approval. The facilities are in Warminster and Hamburg in Pennsylvania, in Fort Worth, Texas, and in Downey, California. The transaction resulted in net proceeds of $105.7 million. The sale reflects Management’s decision to focus on the Corporation’s most promising core business operations and on the development of digital products and services. Transcontinental is still the leader in direct marketing in Canada.
At its June 8, 2010 meeting, the Corporation’s Board of Directors declared a quarterly dividend of $0.09 per participating share on Class A Subordinate Voting Shares and Class B shares. These dividends are payable on July 22, 2010 to participating shareholders of record at the close of business on July 2, 2010. On an annual basis, this represents a dividend of $0.36 per participating share.
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. These dividends are payable on July 15, 2010. On an annual basis, this represents a dividend of $1.6875 per preferred share.
Upon releasing its quarterly results, Transcontinental will hold a conference call for the financial community today at 4:15 p.m. (ET). 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 Nessa Prendergast, Director, Media Relations, at 514-954-2809.
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, the second-largest community newspaper publisher, and with its digital platforms that deliver unique content through more than 120 websites, it is also one of Canada’s leading media groups. In addition, Transcontinental offers marketing products and services that use new communications platforms supported by database analytics, premedia, e-flyers, email marketing, custom communications and mobile solutions.
Transcontinental (TSX: TCL.A, TCL.B, TCL.PR.D) has 11,000 employees in Canada, the United States and Mexico, and reported revenues of C$2.4 billion in 2009. For more information about the Corporation, please visit www.transcontinental.com.