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Transcontinental Improves Earnings Before Unusual Items by 5%

Wednesday, June 15, 2005

Press release from the issuing company

MONTREAL--June 14, 2005-- Thanks to the contribution from acquisitions, organic sales growth, efficiency improvements and cost reduction measures, Transcontinental Inc. today announced an increase in its operating results for the second quarter of fiscal 2005. These items more than offset the downward pressure on prices in some segments of the printing industry, the negative impact of the exchange rate, and the decrease in some categories of national advertising in newspapers and magazines. "We had a good second quarter and we are especially proud that our three operating sectors contributed to organic growth in revenues and operating income before unusual items," said Luc Desjardins, president and chief executive officer of Transcontinental. "The acquisitions of Canadian magazine publisher Avid Media in 2004, and U.S. direct marketer JDM early in the second quarter of 2005, had a positive impact on operating results. Furthermore, our printing operations in Mexico are continuing their turnaround. We also want to highlight the excellent performance in our flyer and newspaper printing niches, as well as in our community newspaper publishing and advertising material distribution activities in Quebec. "We also intensified our investments in the future, even though that meant adding to our costs in the short term," continued Mr. Desjardins. "Here I am referring to our special $53-million investment project to increase our competitive edge in the printing of books, catalogues and magazines; to the current integration of our direct marketing operations in the United States; to the consolidation of our book printing activities in Canada, which will result in the closure of our Peterborough plant and the transfer of its work primarily to Louiseville, east of Montreal, where we have started to build a larger and highly automated printing plant at a cost of $20 million; to the implementation of our pre-media vision, aimed at giving us a competitive advantage by offering our customers value-added services; to the investments in our newspaper and magazine brands, notably in Canadian Living and Coup de pouce; and, lastly, to the many sales-development and efficiency-improvement measures implemented under our Horizon 2005 business project." Transcontinental's management maintains its earnings-per-share objective, excluding unusual items, at $1.74 to $1.82 for fiscal 2005, which represents growth of 2% to 6% over fiscal 2004. Year-to-date earnings-per-share growth is 7%, slightly above our annual objective. However, persistent pricing pressure in some segments of the printing industry, an increasingly negative foreign exchange impact compared to last year, and additional temporary costs related to the reorganization, integration and consolidation of plants will reduce the pace of growth in the second half of the year. Financial Highlights For the second quarter ended April 30, 2005, Transcontinental reported consolidated revenues of $558 million, up $38 million, or 7%, over revenues of $520 million in the same quarter in 2004, while operating income before depreciation, amortization and unusual items rose 2% to $97 million, compared to $95 million in 2004. This dual increase stems from acquisitions and organic growth, partially offset by the negative impact of exchange-rate fluctuations and downward pricing pressures. Several unusual items were recorded during the quarter, totalling $5 million before taxes ($4 million after taxes), or $0.03 per share. In April, the Corporation announced that it was consolidating its book printing operations in Canada, planning to close its Peterborough plant by late October and transfer its production to other plants. This will result in a charge of $6 million before taxes related to the impairment of assets and termination benefits, of which $3 million, or $0.02 per share after taxes, was recorded during the quarter. Furthermore, in August 2004, the Corporation announced that it was consolidating its flyer printing activities in Winnipeg. Of the total charge of $4 million before taxes, $1 million was recorded in the second quarter. Note that in 2004, a restructuring charge of $3 million, or $0.02 per share after taxes, was recorded for workforce reductions. Lastly, the Corporation recorded $1 million before taxes for impairment of assets in Mexico. This equipment was no longer necessary as a result of the decision to shift the product mix to a greater proportion of magazine and catalogue work, which required the transfer of rebuilt equipment from Canada as part of the Corporation's revised manufacturing strategy. Including these unusual items, net income decreased 4%, from $39 million in the second quarter of 2004, or $0.44 per share, to $38 million in 2005, or $0.43 per share. Excluding unusual items, net income on a per-common-share basis rose 5%, from $0.44 to $0.46. For the first six months of fiscal 2005, Transcontinental's consolidated revenues grew to $1.075 billion compared to $980 million for the same period in 2004, an increase of $95 million, or 10%. Operating income before depreciation, amortization and unusual items increased to $176 million, up $7 million, or 4%, compared to $169 million reported in 2004. Excluding unusual items, net income rose 7%, from $66 million in 2004 to $70 million in 2005; on a per-common-share basis, it rose from $0.74 to $0.79. Including unusual items, net income increased 2%, up from $66 million to $67 million; on a per-common-share basis it went from $0.74 to $0.75. Operating Highlights The main operating highlights for the quarter are as follows: - Transcontinental made its first breakthrough in the U.S. market with its unique outsourcing model for newspaper printing, signing a 10-year contract to print The New York Times for Ontario and Upstate New York. Winning this contract with one of the most prestigious daily papers in the world comes in the wake of the outstanding success of La Presse since Transcontinental started printing the Montreal daily two years ago. According to the Audit Bureau of Circulation, the North American reference in such matters, the circulation figures for La Presse between 2003 and 2005 grew more than those of any other major daily in Canada. Transcontinental has also started printing the daily Metro for the Ottawa market and part of the Toronto market. All these projects show the power of Transcontinental's outsourcing model and its significant potential for development. - Direct marketing in the United States is another strategic development niche for the Corporation. On February 14, 2005, Transcontinental acquired the assets of JDM, Inc. This transaction increased the production capacity of its subsidiary, Transcontinental Direct U.S.A., to more than five billion direct mail pieces per year, while adding JDM's advanced production and control systems, logistics systems, leadership in high speed inkjet personalization technology and its strong management team. The five JDM facilities in Pennsylvania join Transcontinental's North American network of plants in the Philadelphia area, Los Angeles, Dallas/Ft. Worth, Toronto and Montreal. The addition of JDM's facilities poses, however, a challenge in the short term since it comes at a time when Transcontinental's direct marketing operations in the Philadelphia region are being consolidated. The additional and temporary expenses resulting from this process are required to improve efficiency over the long term. Once the integration is completed, Transcontinental will benefit fully from the previously identified synergies. - The money spent on developing several of our media brands has already borne fruit, which bodes well for the future. The latest PMB survey identified Canadian Living and Coup de pouce as the top magazines in their categories in Canada, and noted the solid position of the magazine Canadian Home & Country, acquired from Avid Media in 2004. Also in the Media Sector, community newspapers and door-to-door distribution in Quebec had an excellent quarter and should continue to do well in the second half of the year. Additional Information Management's Discussion and Analysis for the second quarter of 2005, along with full financial statements, are posted on the home page of the Corporation's Web site at www.transcontinental.com. Upon releasing its quarterly results, Transcontinental will hold a conference call with financial analysts today at 4:15 p.m. EDT. There will be a simultaneous audio broadcast on Transcontinental's website, which will be archived for 30 days. Dividend Declared At its June 14, 2005 meeting, the Corporation's Board of Directors voted a quarterly dividend of $0.055 per share on Class A Subordinate Voting Shares and Class B shares. These dividends are payable on July 28, 2005 to shareholders of record at the close of business on July 8, 2005.




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