Transcontinental's Rationalization Measures Show Results for 2Q
Friday, June 12, 2009
Press release from the issuing companyMontreal -- Before asset impairment, goodwill write-off and restructuring costs, Transcontinental's results for the second quarter ended April 30, 2009 were better than the previous quarter. Adjusted operating income before amortization for the second quarter 2009 was down 10% compared to a decline of 29% in the first quarter 2009. The Corporation continued to carry out its major rationalization plan implemented in the United States in November 2008 and extended to all its other operations in February 2009. These measures, which included the elimination of 1,500 jobs, limited the negative impact of the recession. The full effect of the measures, combined with beginning two new contracts for Rogers Communications, printing the San Francisco Chronicle in summer 2009, and promising developments in marketing communications activities will put Transcontinental in a better position for the second half of its fiscal year. With financing arrangements totalling $625 million in place since February, management has the resources required to pursue its business plan and projects.
"In the current context, excluding unusual items, these are encouraging results that show an improvement over the first quarter," said François Olivier, President and CEO of Transcontinental. "We reacted quickly and adjusted our production capacity and costs to the demand in each of our markets. I'd like to thank our employees for their exceptional support of our rationalization efforts and for the new and innovative ways they have found to do their work. After three quarters of adjustment and refocusing, and assuming no further deterioration in the present economic situation and the execution of our rationalization plan, we are confident that our profitability will continue to improve in coming quarters.
"In a more general way," noted Mr. Olivier, "we will continue to benefit from our niche strategy, our diversified and balanced customer base, the start of new contracts and our financial resources. The year 2009 will be one of transition for Transcontinental and we will come out of it stronger and better positioned in each of our markets to take advantage of the economic recovery."
In the second quarter 2009, Transcontinental recorded consolidated revenues of $563.4 million, down 5% from $595.1 million in the second quarter of 2008. Adjusted operating income before amortization was down 10%, from $89.0 million to $80.5 million. The decline is mainly due to a major decrease in the volume of direct mail activities in the United States and, to a lesser extent, to the effects of the recession on some printing and publishing activities. Excluding the negative impact of the lower volume of direct mail activities in the United States, consolidated revenues would have declined 2% and adjusted operating income before amortization would have declined 5%. The decrease was mitigated by the positive contribution of acquisitions, the positive impact of paper on revenues and the positive fluctuations in the exchange rate between the Canadian dollar and its U.S. and Mexican counterparts, combined with growth in door-to-door distribution activities, in the publishing of educational materials and in digital and one-to-one marketing communication products.
Adjusted net income, which does not take unusual items into account, declined 11%, from $34.1 million to $30.2 million; on a per-share basis, adjusted net income decreased from $0.42 to $0.37.
Net income went from $36.9 million in the second quarter of 2008 to a loss of $144.3 million in 2009. The decrease is mainly due to impairment of intangible assets and goodwill write-off, principally related to commercial printing activities, totalling $169 million, non-cash items having no effect on cash and cash flow from operations. Net income was also reduced by restructuring costs and asset impairment totalling $27.5 million, stemming from rationalization measures. On a per-share-basis, net income went from $0.45 to a loss of $1.79.
In the first six months of fiscal 2009, consolidated revenue decreased 2%, from $1.19 billion to $1.17 billion, while adjusted operating income before amortization decreased 19%, from $171.4 million to $138.8 million. Net income went from $71 million in the first half of 2008 to a loss of $150,7 million in 2009; on a per-share basis, net income declined from $0.86 to a loss of $1.87. Adjusted net income, which does not take into account unusual items related to asset impairment, restructuring costs and goodwill write-off, was down 28%, from $62.5 million to $45.3 million; on a per-share basis, adjusted net income declined from $0.76 to $0.56.
As at April 30, 2009, the Corporation's net funded debt to total capitalization ratio was 49%, in the high end of the target range of 35% - 50% set by management.
For more detailed financial information, please see Management's Discussion and Analysis for the Second Quarter Ended April 30, 2009, at www.transcontinental.com, under "Investors."
Here are the main operating highlights for the second quarter 2009.
• The Corporation continued to carry out its major rationalization plan to keep Transcontinental financially solid, and modified production capacity in each of its markets to meet demand. To date, the equivalent of 1,400 positions have been cut-more than half of them in the United States; in addition, five print titles have ceased publication and four printing plants have been merged or consolidated. A set of other measures have also been implemented throughout the organization, ranging from a hiring freeze to unpaid leave and shorter work weeks. The savings from the restructuring should exceed the targets set in the first quarter and will amount to about $100 million on an annual basis, $75 million of that in the current fiscal year. The full impact of these measures will be felt starting in the second half of this fiscal year. Lastly, the plant in Fairborn, Ohio, which produces flyers for regional retailers, was sold following a review of the Corporation's business objectives in this segment in the United States.
• In early 2009, the two new contracts with Rogers Communications took effect: one is an exclusive six-year contract to print all of Rogers' magazines; the second, also for six years, is to produce and print its marketing communications products. These two major gains add to the full impact of the Shoppers Drug Mart-Pharmaprix contract in 2009 and the printing of the San Francisco Chronicle daily, which will start in the summer of 2009.
• The mission of the new Marketing Communications sector, created in November 2008, is to develop new avenues of growth centred on new communications platforms, one-to-one marketing and an integrated service offering. In the second quarter, this sector signed several contracts with major brands such as Reader's Digest Canada and Purolator Courier. It also received seven 2008 Pearl Awards, which recognize excellence in the custom communications industry.
• In the second quarter, the Media sector continued to extend and enrich its digital services offering through various initiatives: the launch of icimamaison.ca, a real estate selling site; the relaunch of publisac.ca; the launch of online versions for the two finance magazines Investment Executive and Finance et Investissement, which will also soon release daily updates for BlackBerries and the Apple iPhone. Also, traffic on weblocal.ca, Transcontinental's Canada-wide search site for finding and rating local businesses now exceeds two million unique visitors per month. Revenue generated by digital services grew more than 30% in the first half compared to the same period a year ago. In the second half of fiscal 2009, the Media sector will continue to expand its digital services offering while completing its rationalization measures.
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