Montreal, December 15, 2009 – Cost savings of close to $80 million from the rationalization plan which Transcontinental quickly instituted to counter the recession and the multiple efficiency gains which resulted; start of major printing contracts, including those for the San Francisco Chronicle and Rogers Communications; ongoing investments over the past several years in technology, new media and brand development; and the solid performance of educational book publishing and door-to-door distribution operations: those are the main factors that enabled Transcontinental to improve its profitability from quarter to quarter in 2009 and to end the year with a strong fourth quarter. Reflecting this performance, adjusted operating income before amortization grew steadily during the year, culminating with 15% growth in the fourth quarter. Transcontinental also outdid its performance in 2008 in the past two quarters, despite the continued weakness in the economy.

“I am particularly proud of our operating performance in the fourth quarter—one of the best in our history—and the steady improvement in our financial results over the course of the year in very turbulent conditions,” said François Olivier, President and Chief Executive Officer. “We are making it through this serious recession by doing better than most of our main competitors and gaining back much of the ground lost compared to 2008. We are dealing with the recession responsibly and with discipline. We also reacted right from the very start, and we did it in the Transcontinental way, calling on our people across the company to mobilize, be innovative and execute. They responded by coming up with new ways to improve efficiency and cut costs, and put forward original ideas for development. I want to thank them for their commitment, in a difficult time, to the interests of all employees and the long-term health of Transcontinental.

“We also signed financing agreements for a total of $888 million despite the tight credit situation, and we did so at competitive rates. I see this as acknowledgement by investors of our financial credibility, as well as their confidence in our growth strategy and prospects for the future. We plan to maintain our prudent balance between profits, costs, debt and investments.

Mr. Olivier continued, saying “the recurring cost savings of about $110 million a year achieved with our rationalization plan, our financial situation that allowed us in 2009—and will enable us in 2010—to further invest in our development, particularly in digital, and our decision to concentrate our new marketing communication services in a separate sector to encourage their expansion, put us in an excellent position to profit from the business opportunities that will arise in the next year in our continually evolving markets. Transcontinental is now more flexible and focused more than ever on its assets and strategic priorities. I am confident about the future.”

As announced at the end of the third quarter, the Corporation has now decided to use the ratio of net indebtedness (including the securitization program) to adjusted operating income before amortization as its primary indicator of financial leverage. Management also set the objective of maintaining this ratio within a target range of 2.00 to 2.50 and expects to achieve that target before the end of fiscal 2011. At October 31, the ratio was at 2.59. Furthermore, as at October 31, 2009, the Corporation’s net funded debt to total capitalization ratio was 42%, within the range of 35% - 50% set by Management.

Financial Highlights

In the fourth quarter ended October 31, 2009, Transcontinental recorded consolidated revenues of $594 million down 9% from $653.3 million in the fourth quarter of 2008, while adjusted operating income before amortization increased 15%, from $108.3 million to $124.3 million. The favourable fluctuations in the exchange rate between the Canadian dollar and its U.S. and Mexican counterparts contributed a positive $0.8 million to revenues and $3.1 million to operating income before amortization.

Net income applicable to participating shares went from a loss of $94.3 million in 2008 to a gain of $43.1 million in 2009, primarily due to the write-off of goodwill related to direct mail operations in the United States and a restructuring charge recognized in the fourth quarter 2008 financial results; on a per-participating-share basis, net income applicable to participating shares rose from a loss of $1.17 to a gain of $0.53. Adjusted net income applicable to participating shares, which excludes asset impairment, rationalization costs and impairment of goodwill and intangible assets, increased 12%, from $47.9 million to 53.7 million; on a per-participating-share basis, adjusted net income applicable to participating shares grew 12%, from $0.59 to $0.66.

For the 12-month period ended October 31, 2009, this strong fourth quarter largely offset the decline in the first two quarters during the middle of the recession. Consolidated revenues were down 6%, from $2.43 billion to $2.29 billion, while adjusted operating income before amortization decreased 3%, from $361.5 million to $349.3 million. The positive impact of the exchange rate between the Canadian dollar and its U.S. and Mexican counterparts added $63.2 million to revenues and $16.6 million to adjusted operating income before amortization. The decline in direct mail activities in the United States accounts for 43% of the decrease in the Corporation’s consolidated revenues compared to fiscal 2008, the remainder mainly stems from the disposal of printing and publishing assets, and lower advertising and marketing spending.

Net income applicable to participating shares went from $6.6 million in 2008 to a net loss of $82.3 million in 2009. This decrease is principally due to the impairment of intangible assets, the write-off of assets and the cost of rationalization measures, as well as the write-off of goodwill, which were charged to fiscal 2009 financial results. Net of income taxes, these unusual items totalled $212.5 million for fiscal 2009 as a whole, or $2.63 per participating share. On a per-participating-share basis, net income applicable to participating shares declined from a gain of $0.08 to a loss of $1.02, down $1.10.

Adjusted net income applicable to participating shares, which excludes unusual items, decreased 7%, from $140.3 million to $130.2 million. On a per-participating-share basis, adjusted net income applicable to participating shares decreased 6%, from $1.72 to $1.61.  

For more detailed financial information, please see Management’s Discussion and Analysis for the Fiscal Year Ended October 31, 2009 and the full financial statements at www.transcontinental.com, under “Investors.”

Rationalization Plan

The Corporation quickly instituted a rationalization plan with the goal of matching Transcontinental’s production capacity to demand in each of its markets and the decreased advertising revenues of its magazines and newspapers. Five printing plants were merged or consolidated, two others were sold, eight publications were stopped and two were sold. Close to 2,000 jobs were eliminated, half of them in the direct mail operations in the United States. A set of other temporary measures, ranging from targeted control of hiring to unpaid leaves and shorter workweeks were also instituted across the organization. Senior executives contributed by taking two weeks of unpaid leave but still working, which represents a 4% reduction in salary. In all, the recurring cost savings amounted to about $110 million, of which close to $80 million was achieved in 2009.

Operating Highlights

In 2009, Transcontinental continued to implement it unique two-pronged growth strategy: build the new and strengthen promising traditional activities. This strategy is in line with its mission to help businesses and advertisers identify, reach and keep target consumers through a global and integrated offering. Transcontinental defines itself as a supplier of custom marketing solution on print or digital communications platforms.

Below, in light of this strategy, are the sector highlights for fiscal 2009.

Marketing Communications Sector

Transcontinental’s development going forward will be strongly influenced by its ability to offer its customers new services in one-to-one advertising (database analytics, permission-based email marketing and custom communications), as well as new communications platforms. Fiscal 2009 was rich in actions and concrete achievements in this area.

• Creation, in November 2008, of the Marketing Communications sector. The purpose of this sector is to augment Transcontinental’s integrated offering by providing customers with solutions based on the development of new one-to-one marketing services and new communication platforms.
• Appointment of Christian Trudeau as President of the Marketing Communications sector. He started his duties in April 2009. From 2004, Mr. Trudeau was President and CEO of Centria Commerce, a company that specializes in e-commerce. Prior to that he was President and CEO of BCE Emergis, a North American leader in e-commerce, and also held executive positions with Bell Canada and the Montreal Stock Exchange.
• The service offering in this new sector was enhanced by two strategic acquisitions in fiscal 2009: Toronto-based Redwood Custom Communications, a North American leader in custom communications, specializing in turnkey solutions that provide personalized content for print and digital; and Conversys, based in London, Ontario, Canada’s leading provider of e-flyers, specializing in the repurposing and adaptation of print content into interactive Web-based content.
• As fiscal 2009 came to an end, Management decided to dedicate the Marketing Communications sector to its principal role, concentrating its new services in this sector and transferring its Canadian commercial printing and direct mail operations to the Printing sector. This will help intensify the new and solidify the Corporation’s traditional core business.

On the basis of the most recent restructuring in November 2009, the Marketing Communications sector has annualized revenues of about $120 million and more than 800 employees.

Media Sector

The Media sector covers the publishing of magazines, newspapers and books, door-to-door distribution and the management of over 120 Internet sites and portals. This sector has also been very active at building the new while strengthening its core activities.

• In 2009, Transcontinental continued to invest in strategic development of the Media sector, focussing on Web-based services. One of the highlights was the launch of weblocal.ca, a Canada-wide search site that offers local advertisers a showcase on the Internet and helps consumers quickly find, rate and comment on local services. The portal has already exceeded two million unique visitors per month.
• With its strong brands and popular content, Transcontinental has been very successful over the past several years at broadening its presence on the Internet. In 2009, for instance, Coup de pouce magazine used its 25th anniversary to launch a new, interactive and consumer-friendly site. For their part, The Hockey News, Canadian Living, the daily Métro paper and the financial and business news publications Les Affaires, Finance et Investissement and Investment Executive can now be accessed via mobile technology.
• In addition to a revenue model based on selling advertising pages in its newspapers and magazines, Transcontinental is now also selling advertising banners on its websites and subscriptions on its portals such as weblocal.ca. Transcontinental reported $27.5 million in revenues from its websites, up 30% over 2008, and these Web-based activities are profitable. Its 120 sites and portals reach an average of more than six million unique visitors per month.
• The creation of the 360 Solutions sales team is a particularly promising development. The goal of this team is to present an integrated offering of print products and digital tools from the Media sector, and even the rest of the company, to major customers. The team already has a number of solid achievements to its credit.
• Door-to-door distribution activities have continued to grow despite the recession, and Publisac (Ad-Bag) continues to prevail as a highly effective and profitable marketing tool for retailers. A number of new clients have been added over the past year. Note that since January 2008, Ad-Bag is made out of oxo-biodegradable plastic certified by Environmental Products Inc. (EPI®).
• Chenelière Éducation, Canada’s leading publisher of French-language educational books, had another excellent year in 2009 due in part to the educational reform in Québec. It has won numerous awards for the quality of its products and services. For its part, the daily paper Métro is probably one of the only dailies in North America whose revenues have grown, confirming its status as the most-read paper on the Island of Montreal.

The Media sector generated revenues of $607 million in 2009 and has 3,100 employees. The president is Natalie Larivière.

Printing Sector

To promote efficiency, printing activities are now grouped into a single sector, which is the Corporation’s most important source of revenues. In 2009, the continuous improvement of efficiency and the introduction of state-of-the-art technologies were central to the advances in this sector.

• The Printing sector has always been distinguished by its efficiency and ability to execute. In 2009, in response to the recession, it embarked on a major review of its assets so that it could systematically adjust costs to demand, plant by plant, group by group and region by region. In addition to many local rationalization measures, units were grouped together and less strategic assets were sold or closed.
• In 2009, capital expenditures were concentrated on the initiatives that were either absolutely necessary or strategic. Transcontinental did, however, continue to benefit from some $500 million in capital investments over the past three years, which put the organization at the head of one of the most modern platforms in North America, particularly with respect to newspapers, flyers and magazines. Its state-of-the-art equipment strengthened its lead in each of its niches. Moreover, two new exclusive six-year contracts with Rogers Communications took effect early in 2009: the first, to print all of Rogers’ magazines, and the second, to produce and print its marketing products. These two major gains are added to the full-year impact of the Shoppers Drug Mart-Pharmaprix contract and to the many new customers added in flyer and newspaper printing.
• The printing and distribution activities for the San Francisco Chronicle, under a 15-year contract worth US$1 billion (excluding paper), started in July at the new plant in Fremont, California. Transcontinental invested about US$230 million in this new plant which is equipped with the latest technologies allowing for maximum use of colour and glossy paper, a first in the United States. Moreover, the modernization of the Transcontinental Transmag plant in Montreal was completed on time and the new presses started rolling in the second half of fiscal 2009. This required an investment of about $60 million.
• The establishment of a unique Canada-wide newspaper and flyer printing network, a first in Canada, is on schedule. This platform will offer The Globe and Mail, under an 18-year and $1.7 billion contract starting at the end of 2010, the possibility of putting colour on each page; it also makes the latest print technologies available to Transcontinental’s retail customers. This hybrid manufacturing platform, which represents a total investment of $175 million, is a new way for Transcontinental to specialize its plants and will give it a key edge in terms of synergy and operating efficiency.

On the basis of the most recent restructuring in November 2009, the Printing sector has annualized revenues of $1.57 billion and 8,600 employees. Its president is Brian Reid. Promoted to this position in November 2008, Mr. Reid has been with Transcontinental since 1992. From 2003, he was Senior Vice President of the catalogue and magazine printing group in Canada and the United States.

Reconciliation on 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.

The following table reconciles GAAP financial measures to non-GAAP financial measures.

Sustainable Development

Transcontinental has made sustainable development a priority.

After adopting a forward-looking Paper Purchasing Policy that was more stringent than current standards and certifications, Transcontinental began working with suppliers and customers to help them concretely, as a team, tackle sustainability together. The results of this joint effort continue to be very encouraging. From 2008 to 2009, the use by customers of “Gold” category paper, the best in terms of compliance with sustainable forest management, increased 55%. That follows on a 37% increase between 2007 and 2008; nearly half of our printed products use paper from the Gold category.

Moreover, in 2009, Transcontinental’s 42 printing facilities in Canada and the United States all obtained triple forest product chain-of-custody certification. This guarantees that the paper manufacturing process complies with the most stringent standards for sustainable forest management. Note also that the new Fremont plant, which prints the San Francisco Chronicle, is one of the first printing plants in North America to be built to Leadership in Energy and Environmental Design (LEED) standards.

Lastly, this year the Corporation produced its first sustainable development report, prepared using the methodology and guidelines recommended by Global Reporting Initiative (GRI), a highly respected source for methodology. A summary will be available in the 2009 Annual Report and the full report will be available on the Transcontinental site at transcontinental.com in February 2010.

Sustainable development incorporates social progress, economic development and protection of the environment. In 2009, Transcontinental once again made it into the select club of the Best 50 Corporate Citizens, ranked by Corporate Knights magazine. The magazine defines a corporate citizen as “a company that fulfills its part of the social contract, while innovating solutions to pressing social and environmental challenges of our time.” Transcontinental has been part of this group since 2004.

Financing Activities

In a general context of tight credit, Transcontinental successfully completed, primarily in the second half of fiscal 2009, several refinancing and financing arrangements. These agreements, totalling $888 million, are as follows:

• a private placement of $100 million in unsecured debentures underwritten by the Solidarity Fund QFL, a development capital fund based in Quebec;
• the extension, to August 2010, of the $300 million accounts receivable securitization program put in place in 2001;
• renewed bank credit facilities of $150 million for one year with its bank syndicate; on December 4, 2009, the Corporation reimbursed and cancelled these credit facilities;
• a $100 million credit facility (five years) from the Caisse de dépôt et placement du Québec;
• a $50 million term loan (five years) from the Société générale de financement du Québec;
• a six-year financing agreement for 55.6 million euros ($88.4 million) with major European bank HypoVereinsbank, to acquire production equipment over the next two years;
• and lastly, placement of cumulative rate reset first preferred shares for gross proceeds of $100.0 million.

Management sees these agreements as investor acknowledgement of Transcontinental’s financial credibility, as well as concrete evidence of their confidence in the Corporation’s growth strategy and prospects.

Corporate Affairs

On October 8, Transcontinental announced the appointment of Pierre Fitzgibbon to the Board of Directors of the Corporation. President and Chief Executive Officer of Atrium Innovations, Mr. Fitzgibbon has enjoyed a 30-year career in public companies and financial institutions and will bring the benefit of his experience to Transcontinental. In another development, J.V. Raymond Cyr decided to leave the Board after 12 years of invaluable service. Over the years, Mr. Cyr contributed to Transcontinental’s growth with outstanding professionalism. The Chairman of the Board thanks him on his own behalf and on behalf of all shareholders.