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Transcontinental's Q1 revenues up 4% with organic growth generated in all three sectors

Thursday, March 10, 2011

Press release from the issuing company

Montreal, – Transcontinental's revenues increased 4% in the first quarter of 2011, from $511.6 million to $530.1 million. This increase was primarily due to a number of new printing contracts, including the impact from the expanded relationship with The Globe and Mail, as well as an increase in volume from its Local Solutions Group, which includes its distribution and newspaper publishing operations. Excluding acquisitions, divestitures and closures, the impact of the exchange rate and the paper component variance, organic revenue growth was 3%, with all three sectors contributing. Similarly, adjusted operating income increased 5%, from $47.3 million to $49.8 million, representing the 7th consecutive quarter of year over year growth, while the adjusted operating income margin increased from 9.2% to 9.4%. This increase was mainly due to the contribution from new contracts and continued efficiency improvement initiatives in the Printing sector, partially compensated by continued strategic investments in the Media and Interactive sectors. Net income applicable to participating shares was stable at $26.2 million or $0.32 per share as impairment of assets and restructuring costs were higher than in the first quarter last year. Excluding these unusual items, adjusted net income applicable to participating shares increased 10%, from $27.1 million to $29.9 million. On a per share basis it increased 9% from $0.34 to $0.37. In addition, Transcontinental improved its financial condition by optimizing its debt portfolio, increasing its financial flexibility and reducing its capital expenditures.

"Our first quarter results continue to reflect the execution of our strategy: strengthening our existing assets and developing new digital products and services." said Francois Olivier, President and Chief Executive Officer. "Our Printing sector is reaping the benefits from our recent investments by leveraging its most productive assets to gain synergies as well as market share. The new Canadian Tire win is one example of this. Our Media and Interactive sectors, for their part, are continuing to make strategic investments in the digital area. The launch of our group buy websites LaMegaPrise.com and TheMegaCatch.com, our web site design services as well as Search Engine Marketing services, for small and medium-sized businesses, are just a few examples of this." said Mr. Olivier. "I am very pleased with our first quarter results, especially the organic revenue growth we were able to generate, and look forward to the future with confidence as we are responding to our customers' evolving needs." concluded Mr. Olivier.

Other Financial Highlights

- Free cash flow from operations increased significantly as cash flow from operations, before changes in non-cash operating items, increased 9%, from $64.5 million to $70.2 million and capital expenditures decreased, from $62.7 million to $20.7 million.

- As at January 31, 2011, the ratio of net indebtedness (including the securitization program) to adjusted operating income before amortization was 1.78x, as compared to 1.82x as at October 31, 2010 and 2.40x as at January 31, 2010. The ratio of net indebtedness to operating income before amortization is slightly above the target of 1.5x set by management. Over the next few quarters, it should get closer to the target given the expected increase in cash flow generation and reduction in capital expenditures.

- In the past few months, Transcontinental improved its financial flexibility and optimized its debt portfolio. On December 21, 2010, Standard & Poor's raised Transcontinental's credit rating from BBB- (stable) to BBB (stable) reflecting the continued improvement in Transcontinental's financial position and prospects. In addition, after the end of the quarter, Transcontinental prepaid and cancelled its $100 million term credit facility with Caisse de dépôt et placement du Québec. To increase its financial flexibility, Transcontinental also set up a new two-year $200 million securitization program with a Canadian bank, however it does not believe it will use this program in the near term.

For more detailed financial information, please see Management's Discussion and Analysis for the First Quarter Ended January 31, 2011 at www.transcontinental.com, under "Investors."

Operating Highlights

- Transcontinental concluded a four-year agreement with Canadian Tire, worth several hundred million dollars, starting in January 2012. This new agreement expands services to cover Canadian Tire's flyer printing needs on a national scale, for all of its banners, and the printing of marketing materials as well as distribution service in Eastern Canada. In addition, Canadian Tire will be able to draw on Transcontinental's other services, such as data analytics, Canada-wide distribution, e3 flyer production, direct marketing programs via print, mobile and email channels, and advertising campaigns in Transcontinental's consumer magazines, newspapers and media websites. This new agreement will add about $30 to $40 million in incremental revenues on an annual basis and makes Transcontinental Canadian Tire's leading provider of marketing solutions across Canada.

- Transcontinental continued to invest in new digital products and services in its Media and Interactive sectors. It recently launched Search Engine Marketing (SEM) services and web site design services for its small and medium-sized business customers in local communities. It also acquired Vortex, a leading provider of integrated mobile solutions located in Toronto and developed the first mobile portal for Quebec's job seekers for Tele-Ressources.

- Transcontinental launched its second Sustainability Report, based on the Global Reporting Initiative (GRI), an international standard for sustainability methodology. The Report meets Application Level B of the GRI standard, an improvement over Level C received last year. The 2010 Sustainability Report includes the results from stakeholder engagement initiatives as well as the elaboration of objectives and targets. The full web report, a downloadable pdf as well as a highlights brochure are all available at www.transcontinental-ecodev.com.

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 9, 2011 meeting, the Corporation's Board of Directors declared a quarterly dividend of $0.11 per Class A Subordinate Voting Shares and Class B shares. This dividend is payable on April 21, 2011 to participating shareholders of record at the close of business on April 4, 2011. On an annual basis, this represents a dividend of $0.44 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. This dividend is payable on April 15, 2011. On an annual basis, this represents a dividend of $1.6875 per preferred share.


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