Despite Difficult Economy, Transcontinental Improves Profitability
MONTREAL—September 10, 2009—Before unusual items and despite the difficult economic situation, Transcontinental’s profitability in the third quarter increased due to its rationalization program and the daily efforts by employees across the organization to improve efficiency and reduce costs. Furthermore, the full impact of the new contracts announced previously, including contracts to print the Rogers Communications’ magazines and direct marketing products, the startup of printing of the San Francisco Chronicle daily paper, the customers gained in flyer and newspaper printing, the excellent performance in educational book publishing, and the success of its integrated service offering which combines new digital platforms with print, partially offset the decrease in revenues stemming from the recession.
“What is especially satisfying in our third-quarter results is the improved profitability over the two previous quarters and compared to the solid third quarter of 2008,” said François Olivier, President and Chief Executive Officer of Transcontinental. “For the first time this year, our financial results were better than last year’s. We’re beginning to see the full impact of the tough decisions the recession obliged us to make from the start of the fiscal year. I’d like to thank our employees for their commitment to their company, which has had them working on many efficiency improvement and cost-savings initiatives. Thanks to everyone’s efforts, Transcontinental is now a more flexible organization and in a position to keep developing its integrated service offering, which is unique in Canada. Our enviable financial position, strengthened by two new loans and an increase in our credit facilities in the third quarter, means that we can continue to invest wisely and prudently in our future.”
“The market is still fragile,” noted Mr. Olivier, “but we are headed in the right direction. I am certain that we will come out of the recession stronger and in a good position to take advantage of the economic recovery.”
The Corporation has decided to now use the ratio of net indebtedness (including the securitization program) to adjusted operating income before amortization as its primary indicator of financial leverage. In addition, Transcontinental has set the objective of maintaining this ratio within a target range of 2.00 to 2.50 and expects to achieve that by the end of fiscal 2011. As at July 31, 2009, the ratio was 3.18. Furthermore, as at July 31, 2009, the Corporation’s net indebtednessto total capitalization ratio was 49%, within the 35% - 50% range set by management.
In the third quarter ended July 31, 2009, Transcontinental recorded consolidated revenue of $533.1 million, down 9% from the $584.9 million recorded in the same quarter in 2008. Adjusted operating income before amortization increased 5%, from $81.8 million in 2008 to $86.2 million in 2009. The decrease in revenue is mainly due to the recession, which led to a decline in the volume of direct mail activities in the United States and in marketing product printing activities, as well as advertising revenues in magazines and newspapers.
Net income decreased 15%, from $29.9 million to $25.3 million, due to the unusual item of restructuring costs; on a per-share basis, net income decreased from $0.37 to $0.31. Adjusted net income, which excludes unusual items, rose 4%, from $29.9 million to $31.2 million; on a per-share basis, adjusted net income increased from $0.37 to $0.39.
A pre-tax amount of $7.5 million ($5.9 million after tax) was charged to the third quarter with respect to the consolidation of direct mail operations in the United States and the rationalization program announced in February 2009. In the first three quarters of fiscal 2009, these measures generated cost savings of about $50 million. The goal for fiscal 2009 is to save more than $75 million and, on an annualized basis, more than $100 million.
In the first nine months of fiscal 2009, consolidated revenue amounted to $1.701 billion, down 4% from $1.776 billion in 2008. Adjusted operating income before amortization decreased 11%, from $253.2 million to $225 million. Net income went from $100.9 million in 2008 to a loss of $125.4 million in 2009, largely due to impairment of intangible assets and the write-off of goodwill related primarily to marketing product printing activities, and to the restructuring costs related to the rationalization program. On a per-share basis, net income went from $1.23 to a loss of $1.55.
Adjusted net income, which excludes impairment of assets, restructuring costs and unusual adjustments to income taxes, decreased 17%, from $92.4 million to $76.5 million; on a per-share basis, it was down 16%, from $1.13 to $0.95.
It is important to note that adjusted earnings per share grew steadily during fiscal 2009, from $0.19 in the first quarter to $0.37 in the second and $0.39 in the third. This measurement is a good indicator of operating performance in the first nine months of fiscal 2009.
For more detailed financial information, please see Management’s Discussion and Analysis for the Third Quarter Ended July 31, 2009, at www.transcontinental.com, under “Investors.”
The main operating highlights for the third quarter of 2009 illustrate Transcontinental’s strategy to build the new and strengthen its promising traditional operations.
* Despite the impact of the decrease in advertising revenues on its magazines and newspapers, results in the Media sector were stable compared to the third quarter of 2008. Door-to-door distribution activities and educational book publishing contributed to this stability by generating higher revenues than in 2008. While its brands continue to reap awards and recognition for both their print and Internet versions, Media continued to implement its digital strategy. This included the launch of a new interactive and user-friendly website for magazine Coup de pouce, as well as introducing mobile applications for the financial and business news of Les Affaires, Finances et Investissement, and Investment Executive. Since the start of fiscal 2009, the Corporation has invested about six million dollars on developing the Media sector, mainly its digital platforms. The sector’s network of more than 120 sites receives more than six million unique visitors per month.
* The new Marketing Communications Sector has allowed Transcontinental increase its offer to existing customers by providing products and services that are ideally suited to their new needs and to new consumer behaviours. The finest achievements in this area include additional business with major names such as Shoppers Drug Mart-Pharmaprix, Zellers and Purolator. Recent strategic acquisitions have greatly contributed to the increase in sales, namely Conversys (e-flyer), ThinData (permission-based email marketing), Redwood Custom Communications (custom communications) and Rastar (data-driven direct marketing solutions and variable-data digital printing).
* Excluding the effects of the rationalization of direct mail operations in the United States, revenues in the Printing sector were down slightly and profitability was basically stable. The third quarter was marked by the startup of printing of the San Francisco Chronicle, which took place as scheduled. The new printing plant in Fremont, California where the daily paper is being printed is one of the first in North America to be built to the standards of Leadership in Energy and Environmental Design (LEED). We also gained customers in the flyer and newspaper printing operations, including two leading groups of weekly papers in the Quebec City area: Le Canada français and L’Avantage.
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.
Transcontinental has set up a task force whose mandate is to produce an initial report on sustainable development within Transcontinental. Sustainable development includes social development, economic development and environmental protection. The report will be written to meet the standards of the Global Reporting Initiative, a respected reference which sets out the methodology for this type of report.
In addition, Transcontinental was again listed in the select group of the Best 50 Corporate Citizens in 2009, chosen by the magazine Corporate Knights. The magazine defines corporate citizens as ones who “do the best job of keeping their end of the social contract, while innovating solutions for the problems that will determine whether our civilizations succeeds or fails.”Corporate Affairs
On July 28, 2009, Transcontinental announced that it had concluded two new financing arrangements for a total of $135 million. This included a five-year loan of $50 million from the Société générale de financement du Québec, and a six-year loan of €55.6 million ($85.7 million) with HypoVereinsbank, a major European bank, to be used to purchase production equipment over the next two years.
Transcontinental also announced that it had added $25 million to the $125 million one-year credit facilities arranged with its bank syndicate on May 5, 2009. Transcontinental has thus obtained additional flexibility in managing its working capital and capital expenditures, or to meet any other specific need.
At its September 10, 2009 meeting, the Corporation’s Board of Directors maintained the quarterly dividend of $0.08 per share on Class A Subordinate Voting Shares and Class B Shares. These dividends are payable on October 23, 2009 to shareholders of record at the close of business on October 5, 2009. On an annual basis, this represents a dividend of $0.32 per 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 Transcontinental’s Web site, which will be archived for 30 days. For Media requests for information or interviews, please contact Maxim Labrie, Media Relations, at 514-954-4176.
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 Canada and in Mexico, and sixth-largest in North America. 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, email marketing, and custom communications. Transcontinental is a growing company with a culture of continuous improvement and financial discipline, whose values, including respect, innovation and integrity, are central to its operation.
Transcontinental (TSX: TCL.A, TCL.B) has approximately 13,000 employees in Canada, the United States and Mexico, and reported revenue of C$2.4 billion in 2008. For more information about the Corporation, please visit www.transcontinental.com.