Transcontinental Breaks $3B Revenue Mark in FY 2019, Despite Printing Sector Decline
"2019 was marked by the successful integration of Coveris Americas, a turning point in our transformation, said François Olivier, President and Chief Executive Officer of TC Transcontinental. In only two years, we grew our revenues by 50% to reach more than $3 billion in 2019, a first in our company’s history. We executed on our growth strategy and rigorously managed risk. I am very pleased with our company's evolution in positioning us to create long-term value.
"In our Packaging Sector, in accordance with our plan, we increased our operating earnings margin before depreciation and amortization quarter after quarter during the fiscal year, thanks to realized synergies and efficiency gains. We are building the foundations needed to generate long-term sustainable organic growth and remain committed to improving profitability in the coming years. We are well positioned and our portfolio of products and services will continue to evolve in line with our strategy to focus on markets where we have a lasting competitive advantage.
"In our Printing Sector, we experienced a difficult year overall, marked by the greater than expected decline in our revenues from retailer-related services. Despite the circumstances, we once again recorded an excellent operating earnings margin before depreciation and amortization and strong cash flows. In addition, we implemented cost management measures to help mitigate these impacts. In the coming years, we will continue optimizing our printing platform and seize growth opportunities in certain promising verticals, such as book printing and in-store marketing products.
"Despite the challenges we faced in the Printing Sector, we generated cash flows from operating activities of over $430 million, up 38.1% compared to the previous fiscal year, which were mainly used to reduce our net indebtedness, as per our plan. Finally, I am confident that the Publisac will continue to play an important role in the years ahead. We are committed to defending the interests of the Publisac and of all its stakeholders, namely the thousands of employees who are part of the production and distribution process everywhere across Québec, merchants, local newspaper publishers as well as the millions of citizens who benefit from it every week. We remain convinced that the situation will result in a positive outcome."
Fiscal 2019 Results
Revenues increased by $415.3 million, or 15.8%, from $2,623.5 million in fiscal 2018 to $3,038.8 million in fiscal 2019. This increase is essentially attributable to acquisitions, in particular that of Coveris Americas, which contributed $643.4 million to revenues. It was mitigated by the impact of the accelerated recognition of deferred revenues recorded in 2018 in the Printing Sector, the decrease in volume in the Printing Sector as well as the effect of the sale of the California newspaper printing operations.
Operating earnings decreased by $58.2 million, or 15.8%, from $367.7 million in fiscal 2018 to $309.5 million in the corresponding period in 2019. This decrease is mainly due to the accelerated recognition in 2018 of deferred revenues of $102.1 million, net of accelerated depreciation of $22.0 million. The decline in Printing Sector revenues and workforce reduction costs also contributed to the decrease in operating earnings. This change was partially offset by the impact of the acquisition of Coveris Americas and the gain on sale of assets resulting from the sale of the Fremont, California building to Hearst. Adjusted operating earnings decreased by $8.9 million, or 2.5%, from $356.9 million to $348.0 million.
Net earnings decreased by $47.3 million, or 22.2%, from $213.4 million in fiscal 2018 to $166.1 million in fiscal 2019. This decrease is due to the previously explained decline in operating earnings as well as higher financial expenses, partially offset by a decrease in income tax expense. On a per share basis, net earnings went from $2.59 to $1.90 due to the above-mentioned items, but also to the effect of the issuance of 10.8 million Class A Subordinate Voting Shares of the Corporation in May 2018.
Adjusted net earnings decreased by $19.2 million, or 8.0%, from $239.4 million in fiscal 2018 to $220.2 million in fiscal 2019, mostly as a result of higher financial expenses and lower adjusted operating earnings, partially offset by the decrease in adjusted income tax expense. On a per share basis, adjusted net earnings went from $2.91 to $2.52, mainly due to the decrease in adjusted net earnings and, to a lesser extent, to the effect of the issuance of 10.8 million Class A Subordinate Voting Shares of the Corporation in May 2018.
2019 Fourth Quarter Results
Revenues decreased by $38.3 million, or 4.6%, from $829.2 million in the fourth quarter of 2018 to $790.9 million in the corresponding period of 2019. This decrease is essentially related to a decline in revenues of the Printing Sector and, to a lesser extent, of the Packaging Sector. In the Printing Sector, the decline is mainly explained by lower volume in our retailer-related service offering and, to a lesser extent, the end of transition services related to the Hearst transaction. The decrease in revenues for the quarter was partially offset by the accelerated recognition of deferred revenues in relation to the sale of the Fremont, California building to Hearst.
Operating earnings increased by $50.7 million, or 48.1%, from $105.5 million in the fourth quarter of 2018 to $156.2 million in the fourth quarter of 2019. This increase is mainly attributable to the change in restructuring and other costs (gains), primarily due to the gain on sale of assets, combined with the effect of the accelerated recognition of deferred revenues of $11.7 million in relation with the sale of the Fremont, California building to Hearst and, to a lesser extent, the increase in the Packaging Sector's operating earnings. This increase was partially offset by the decline in the Printing Sector operating earnings as well as the $10.9 million unfavourable effect of the stock-based compensation expense as a result of the change in the share price in the fourth quarter of 2019 compared to the corresponding period in 2018. Adjusted operating earnings decreased by $24.8 million, or 18.8%, from $131.6 million to $106.8 million.
Net earnings increased by $45.3 million, or 67.6%, from $67.0 million in the fourth quarter of 2018 to $112.3 million in the fourth quarter of 2019. This increase is mainly attributable to the previously explained increase in operating earnings. On a per share basis, net earnings went from $0.76 to $1.28.
Adjusted net earnings decreased by $17.1 million, or 19.7%, from $87.0 million in the fourth quarter of 2018 to $69.9 million in the fourth quarter of 2019. This decrease is mainly due to lower adjusted operating earnings in 2019 compared to the corresponding period in 2018. On a per share basis, adjusted net earnings went from $0.99 to $0.80.
For more detailed financial information, please see the Management’s Discussion and Analysis for the year ended Oct. 27, 2019 as well as the financial statements in the “Investors” section of our website at www.tc.tc
In the Packaging Sector, we expect a decrease in revenues in fiscal 2020 as a result of the definitive agreement to sell the paper and woven polypropylene packaging operations, which generated revenues of about US$215 million (approximately C$286 million) in fiscal 2019. With respect to organic growth, we expect a slight increase in the majority of our other verticals. We will continue to focus on profit margins and the achievement of synergies, which should have a positive impact on operating earnings. To support our customers and strengthen our position in the packaging industry, we will also continue to invest in the research and development of innovative and eco-responsible products. Lastly, by signing long-term contracts with major customers and developing business opportunities, we are building solid foundations for the company's growth.
In the Printing Sector, we expect that the organic decline will continue to affect the majority of our verticals, excluding book printing and in-store marketing products. The acquisition of Holland & Crosby Limited will help partially offset this organic decline. Lastly, our operational efficiency initiatives will have a positive impact in fiscal 2020, which should mitigate the effect of the decrease in volume on operating earnings.
We expect that the Media Sector will continue to record a good performance in the coming quarters in terms of profitability.
To conclude, we expect to continue generating significant cash flows from all our operating activities, which will enable us to reduce our net indebtedness and continue our transformation through targeted acquisitions in line with our strategy.
Non-IFRS Financial Measures
In this document, unless otherwise indicated, all financial data are prepared in accordance with International Financial Reporting Standards (IFRS) and the term "dollar", as well as the symbol "$" designate Canadian dollars.
In addition, in this press release, we also use non-IFRS financial measures for which a complete definition is presented below and for which a reconciliation to financial information in accordance with IFRS is presented in the section entitled "Reconciliation of Non-IFRS Financial Measures" and in Note 3, "Segmented Information", to the annual consolidated financial statements for the year ended October 27, 2019.
Reconciliation of Non-IFRS Financial Measures
The financial information has been prepared in accordance with IFRS. However, financial measures used, namely adjusted revenues, adjusted operating earnings before depreciation and amortization, adjusted operating earnings, adjusted operating earnings margin, adjusted income taxes, adjusted net earnings, adjusted net earnings per share, net indebtedness and net indebtedness ratio, for which a reconciliation is presented in the following table, do not have any standardized meaning under IFRS and could be calculated differently by other companies. We believe that many of our readers analyze the financial performance of the Corporation’s activities based on these non-IFRS financial measures as such measures may allow for easier comparisons between periods. These measures should be considered as a complement to financial performance measures in accordance with IFRS. They do not substitute and are not superior to them.
We also believe that adjusted revenues, adjusted operating earnings before depreciation and amortization, adjusted operating earnings and adjusted net earnings are useful indicators of the performance of our operations. Furthermore, management also uses some of these non-IFRS financial measures to assess the performance of its activities and managers.
Regarding net indebtedness and net indebtedness ratio, we believe that these indicators are useful to measure the Corporation’s financial leverage and ability to meet its financial obligations.
The preceding press release was provided by a company unaffiliated with Printing Impressions. The views expressed within do not directly reflect the thoughts or opinions of the staff of Printing Impressions.