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Transcontinental Reports 6% Growth in 3rd Quater

Tuesday, September 16, 2008

Press release from the issuing company

Montreal, September 11, 2008 – Transcontinental today announced a solid financial performance for its third quarter ended July 31, 2008, and for the first nine months of fiscal 2008. Despite the negative impact of the foreign exchange rate, nearly all financial performance indicators are up compared to the same period in 2007. The acquisition of PLM Group, as well as a series of smaller but strategic acquisitions in 2007 and 2008, combined with the strong performance of newspapers, Publi-Sac (Ad-Bag), flyer and book printing, and Mexican operations, as well as strict cost controls and disciplined financial management, more than offset the negative exchange rate impact and the backlash of the U.S. credit crunch on the Corporation's direct mail operations.

"We are very pleased with our performance for the third quarter and the first nine months of the year, which shows clear growth compared to 2007," said François Olivier, President and Chief Executive Officer of Transcontinental. "Two areas in particular are very encouraging for the future: we have continued to invest in organic growth, especially in strategic segments such as digital media and newspaper printing; and we have continued to attract major customers in Canada in our printing sectors. We fully intend to maintain this momentum in the quarters ahead."

After signing the six-year contract, valued at $35 - $40 million per year, to print all of Rogers Communications' magazines starting February 1, 2009, Transcontinental today confirms another major advance in the context of the consolidation of Canada's printing industry. Since last April, Transcontinental has been printing Shoppers Drug Mart flyers all across Canada. The work is handled by Transcontinental's Canada-wide network of printing plants in Vancouver, Calgary, Toronto, Montreal, and Halifax. This multi-year arrangement, valued at about $25 million per year, is new business for the Corporation with no additional investment required. Shoppers Drug Mart will also benefit from other value-added services, including door-to-door distribution in Quebec with Publi-Sac (Ad-Bag).

The Corporation is in a solid financial position to pursue its development, including growth through acquisitions, with a net indebtedness to total capitalization ratio of 35% as at July 31, 2008, at the bottom end of the target range of 35% to 50% set by management.

Financial Highlights

In the third quarter, Transcontinental recorded consolidated revenues of $584.9 million, compared to $551.1 million in the same quarter of 2007, an increase of 6%. Adjusted operating income before amortization was up by 2%, from $81.3 million in 2007 to $82.7 million in 2008. Excluding the exchange rate fluctuations between the Canadian dollar and its U.S. and Mexican counterparts, which had a negative impact of $9.3 million on revenues and $2 million on adjusted operating income before amortization, growth would have been 8% in revenues and 4% in adjusted operating income before amortization. Thus, the acquisitions made in 2007 and 2008, in addition to organic growth in a number of niches, more than offset the negative impact of the foreign exchange rate.

Net income rose from $27.8 million to $30.3 million, an increase of 9%; on a per-share basis, net income grew 14%, from $0.33 to $0.38. Adjusted net income, which does not take into account impairment of assets, restructuring costs, and unusual adjustments to income taxes, increased 7%, from $28.4 million to $30.3 million; on a per-share basis, adjusted net income rose 12%, from $0.34 to $0.38.

In the first nine months of fiscal 2008, consolidated revenue rose 4%, from $1.708 billion to $1.776 billion, while adjusted operating income before amortization increased 2%, from $249.8 million to $255.8 million. Excluding the foreign exchange rate impact, which reduced revenues by $49.6 million and adjusted operating income before amortization by $13.8 million, growth would have been 7% for revenues and 8% for adjusted operating income before amortization.

Net income rose 25%, from $82 million in the first nine months of 2007 to $102.1 million in 2008. This substantial increase is primarily due to a favourable change in unusual items, the contribution of business acquisitions, and a decrease in financial expenses. On a per-share basis, net income increased 29%, from $0.96 to $1.25. Adjusted net income, which does not take into account impairment of assets, restructuring costs, and unusual adjustments to income taxes, increased 6%, from $87.9 million to $93.6 million. On a per-share basis, adjusted net income increased 11%, from $1.03 to $1.14.

Excluding the adverse effect of the exchange rate in the first nine months of 2008, adjusted earnings per share would have been $1.21, for an increase of 17% compared to the same period of 2007. This measure provides a good indicator of the Corporation's operating performance in the first nine months of the year.

For more detailed financial information, please see Management's Discussion and Analysis for the Third Quarter Ended July 31, 2008 at www.transcontinental.com, under "Investors."

Operating Highlights

The main operating highlights for the third quarter of 2008 are as follows.

• In the third quarter, Transcontinental invested approximately $2 million in digital and interactive initiatives in the Media sector. Other developments include the acquisition of the most important marketplace in Canada for buying and selling businesses, Acquizition.biz, a site that also makes it easier to find strategic or financial partners; the launch of recipefeast.com, the English-language counterpart of the highly popular site recettes.qc.ca, which receives close to a million visitors a month; and the introduction of mobile technology (mobile phone, BlackBerry and Apple's iPhone) to the popular thehockeynews.com site, which receives close to 300,000 visitors a month and has a readership of over two million for its print publication.

• On August 26, 2008, Transcontinental announced that it was awarded a $1.7 billion contract to print The Globe and Mail in most of its major markets in Canada until 2028. This contract, which comes into effect at the end of 2010, represents an extension of existing contracts with The Globe and Mail in the Atlantic Provinces, Quebec, and Ontario¬, and adds two new markets: Alberta and British Columbia. For Transcontinental, this represents approximately $95 million per year in revenue, of which about $25 million per year is new revenue. The printing will be done in Halifax, Montreal, Toronto, Calgary and Vancouver. In 2009 and 2010, Transcontinental will invest approximately $200 million in a new and innovative Canada-wide platform for newspaper and flyer printing, the first Canadian network to integrate the printing of these two products. This network will provide the capacity to deliver colour on every page for The Globe and Mail, and it will also address the needs of Transcontinental's retail customers on the flyer side.

• On September 4, 2008, Transcontinental announced the acquisition of Rastar, Inc. This U.S.-based direct marketing company, headquartered in Salt Lake City, Utah, specializes in interactive database marketing and variable data digital printing, which enable it to offer fully personalized marketing communications services. Rastar's industry experience, combined with its digital printing expertise, will allow Transcontinental to further expand its integrated marketing services offering and enable its clients to achieve the best possible returns on their marketing campaigns. A privately-owned company with approximately US$50 million in annual revenue and 350 employees, Rastar counts many Fortune 500 companies among its clients in verticals such as the auto, consumer goods, and retail industries.

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.

 

 

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