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Transcontinental continues profits on strong Q1

Friday, March 19, 2010

Press release from the issuing company

Montreal, Canada – Transcontinental's profitability was up substantially in first quarter 2010 compared to first quarter 2009, for the third quarter in a row. Adjusted operating income before amortization rose 5% and 15% in the third and fourth quarters of 2009, and 41% in the first quarter of 2010. This growth is directly related to the measures implemented in 2009 to rationalize costs and improve efficiency, the reorganization and divestiture of certain operations and, to a certain extent, the stabilization in customer advertising spending. Revenues were down 11% in the quarter, due to the negative impact of the exchange rate, the divestiture or closure of plants and publications, and paper prices. Excluding these latter items and thanks to the contribution of the two contracts with Rogers Communications, which took effect in 2009, and the contract to print the San Francisco Chronicle which started in July 2009, revenues were down only 2.7%.

"Our first quarter results show a marked increase in our profitability compared to the first quarter of 2009, and this is the third consecutive quarter in which it has improved," said François Olivier, President and Chief Executive Officer. "I attribute our strong performance to four main factors: continued customer confidence in our products and services, the reorganization and sale of some of our operations, the rationalization plan that we quickly implemented last year, and the concerted efforts by our employees to develop greater efficiency. Furthermore, we kept investing to strengthen promising traditional areas as well as our new digital communication platforms and to develop new marketing services to meet the emerging needs of our customers. Which all helps to build the new Transcontinental day by day!

"Transcontinental is now a more flexible organization, and one that is even more focused on its strategic assets and priorities," said Mr. Olivier. "With our enviable financial situation, strong brands, unique approach to combining print with digital, and investments, we will be able to keep providing our customers with custom and turnkey solutions, and take full advantage of opportunities as they arise in our markets."

As at January 31, 2010, the ratio of net indebtedness (including the securitization program) to adjusted operating income before amortization was 2.40, versus 3.25 as at January 31, 2009, due to the preferred share placement, an increase in adjusted operating income before amortization, and the rise of the Canadian versus the U.S. dollar. Furthermore, the Corporation has now achieved its objective, set in fiscal 2009, of maintaining this ratio within a target range of 2.00 to 2.50. Note that in the first quarter, the Corporation repaid and cancelled before maturity credit facilities of $150 million arranged with its banking syndicate in fiscal 2009.

Financial Highlights
In the first quarter ended January 31, 2010, Transcontinental recorded consolidated revenues of $559.3 million, compared to $625.4 million in the first quarter 2009, down 11%. The decrease stems mainly from an unfavourable exchange rate effect of $20.5 million, the divestiture or closure of plants and publications, net of acquisitions, which accounted for $18.2 million, and the decline in paper prices which had a negative impact of $10.4 million on revenues. Excluding the divestitures or closures of publications and plants, the impact of the exchange rate and paper prices, and the acquisitions in fiscal 2009, the decline in revenues was only 2.7%.

Adjusted operating income before amortization rose from $58.3 million to $82.4  million, up a significant 41%, mainly due to the impact of the rationalization measures implemented in 2009 to combat the recession.

Net income applicable to participating shares rose substantially, from a loss of $6.4 million in first quarter 2009 to a gain of $26.2 million; on a per-share basis, it went from a loss of $0.08 to a gain of $0.32. Adjusted net income applicable to participating shares, which does not take into account unusual items related to asset impairment, restructuring costs and income tax adjustments, also grew substantially, from $15.1 million to $25.3 million; on a per-share basis, net income applicable to participating shares rose from $0.19 to $0.31.

Operating Highlights
Below are the main operating highlights to date.

- Transcontinental's growth is largely based on its ability to provide its customers with advertising personalization services and digital communication platforms that meet their new business needs. This is the exact focus of the Marketing Communications Sector, which was created early in fiscal 2009. The forward momentum of Marketing Communications has continued in the first quarter with the signing of several promising agreements with major retail brands in Canada. These agreements cover our advertising personalization services, which include personalized emails, data analytics and creation of custom content. Also, in March 2010, we launch the pre-shopping platform dealstreet.ca for English-speaking consumers, and publisac.ca for French-speaking consumers, in concert with the Publisac team. This solution allows our retail clients to optimize the return on their advertising dollar and consumers to compare and choose the best deals on the Internet.

- The digital development of brands in the Media Sector is going well. For our magazines, for instance, revenues related to the Internet and wireless grew over 30% in the first quarter. In recent developments, weblocal.ca now offers local businesses the first online reputation management tool in Canada. This application will help companies probe, gather and analyze information about themselves on the Internet and in social networks, and adjust their marketing strategy accordingly.

- As a printer, Transcontinental has always stood out for its manufacturing efficiency, technological innovation and comprehensive offering. Its technological superiority attracts major new clients year after year. Customers include Shoppers Drug Mart-Pharmaprix, Rogers Communications and the San Francisco Chronicle, now being printed at our new plant in Fremont, California. In this context, in the first quarter Transcontinental started to implement a unique hybrid newspaper and flyer printing platform through its network of plants across Canada. This hybrid platform, a first in Canada, comes under an 18-year and $1.7 billion contract with The Globe and Mail that will start in early fiscal 2011. It will make it possible for The Globe and Mail to print on glossy paper with colour on every page, and retail clients will have access to the latest printing technology. This highly promising project will require a total investment of about $175 million.

- At its annual meeting of shareholders on February 18, 2010, Transcontinental officially tabled its first Sustainability Report based on the Global Reporting Initiative (GRI), an international standard for sustainability methodology. Already recognized as a leader in environmental protection and as an organization that is involved in the communities in which it operates, Transcontinental plans to broaden its leadership to include sustainable development, which is both a continuation and expansion of the Corporation's commitment to the environment. The report is available on the home page of the Transcontinental website.

- In light of the major structural changes in our industry and the inevitable consolidation underway in a number of segments, on February 10, 2010, Transcontinental announced that it had signed an agreement to sell most of its direct mail assets in the United States to IWCO Direct, a company headquartered in Minnesota, USA. The transaction, which must be approved by regulators, will generate net proceeds of more than US$100.0 million and is expected to close in our second quarter. This decision reflects management's plan to focus its energies on core operations and to emphasize the development of its digital products and services. Note that Transcontinental remains the leader in direct marketing in Canada.

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.

At its March 17, 2010 meeting, the Corporation's Board of Directors declared a quarterly dividend of $0.09 per participating share on Class A Subordinate Voting Shares and Class B shares which represents an increase of 12.5% over the dividend paid in the previous quarter. These dividends are payable on April 30, 2010 to participating shareholders of record at the close of business on April 12, 2010. On an annual basis, this represents a dividend of $0.36 per participating share.

Furthermore, at the same meeting, the Board also declared a quarterly dividend of $0.4161 per share on cumulative 5-year rate reset first preferred shares, series D. These dividends are payable on April 15, 2010. On an annual basis, this represents a dividend of $1.6875 per preferred share.

Note: This press release contains certain forward-looking statements concerning the future performance of the Corporation. Such statements, based on the current expectations of management, inherently involve numerous risks and uncertainties, known and unknown. We caution that all forward-looking information is inherently uncertain and actual results may differ materially from the assumptions, estimates or expectations reflected or contained in the forward-looking information, and that actual future performance will be affected by a number of factors, many of which are beyond the Corporation's control, including, but not limited to, the economic situation, structural changes in its industries, exchange rate, availability of capital, energy costs, increased competition, as well as the Corporation's capacity to implement its strategic plan and rationalization plan, engage in strategic transactions and integrate acquisitions into its activities. The risks, uncertainties and other factors that could influence actual results are described in the Management's Discussion and Analysis and Annual Information Form.

The forward-looking information in this release is based on current expectations and information available as of March 17, 2010. The Corporation's management disclaims any intention or obligation to update or revise any forward-looking statements unless otherwise required by the Securities Authorities.




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