Transcontinental Revenue and Profit Up 5th Consecutive Quarter
Thursday, June 09, 2011
Press release from the issuing company
Montreal, – Transcontinental's revenues increased 1% in the second quarter of 2011, from $510.0 million to $514.7 million. This increase was primarily due to a number of new contracts, most notably from the expanded relationship with The Globe and Mail. Excluding acquisitions, divestitures and closures, the impact of the exchange rates and the paper component variance, organic revenue growth was 3%, with all three sectors contributing. Similarly, adjusted operating income increased 5%, from $58.3 million to $61.3 million, representing the 8th consecutive quarter of year over year growth, while the adjusted operating income margin increased from 11.4% to 11.9%. This increase was mainly due to the contribution from new contracts coupled with the synergies associated with the use of our most productive assets and continued efficiency improvement initiatives in the Printing sector. It was partially compensated by continued strategic investments in the Media and Interactive sectors and more intense competitive pressures in some of our niches. Net income applicable to participating shares went from $67.0 million, or $0.83 per share, to $33.0 million, or $0.41 per share. This decrease is mainly due to a gain related to the discontinuance of direct mail operations in the United States in the second quarter of 2010. Excluding unusual items, adjusted net income applicable to participating shares increased 18%, from $34.1 million to $40.1 million. On a per share basis it increased 17%, from $0.42 to $0.49.
"I am pleased with our second quarter results, especially with the fact that we have generated organic revenue and profit growth for the fifth consecutive quarter in an industry in profound transformation. This demonstrates our ability to manage our operations efficiently, grow market share and transform our business to better respond to our customers' evolving needs," said François Olivier, President and Chief Executive Officer. "I strongly believe that our service offering including print, media and interactive solutions is unmatched in the marketplace and represents a unique multiplatform offering. Furthermore, our solid financial position provides us with the flexibility to pursue our transformation. Today we announced that we were increasing our dividend to participating shareholders by 23%, raising our annual dividend from $0.44 per share to $0.54 per share, reflecting our strong cash flow generating ability," 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 16%, from $65.8 million to $76.1 million and capital expenditures decreased, from $26.3 million to $8.4 million.
- As at April 30, 2011, the ratio of net indebtedness (including the securitization program) to adjusted operating income before amortization was 1.66x, as compared to 1.82x as at October 31, 2010 and 2.08x as at April 30, 2010. The ratio of net indebtedness to adjusted 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 quarter, Transcontinental also prepaid and cancelled its $100 million term credit facility with Caisse de dépôt et placement du Québec and set up a new two-year $200 million securitization program. In addition, Transcontinental intends to prepay and cancel its five-year term loan of $50 million with SGF Rexfor Inc. next month.
For more detailed financial information, please see Management's Discussion and Analysis for the Second Quarter Ended April 30, 2011 at www.transcontinental.com, under "Investors."
- Transcontinental continued to invest in new digital products and services. It partnered with Undertone, a leading provider of display, high impact and video advertising solutions, in order to expand its digital advertising representation offering. This agreement enables Transcontinental to provide Canadian advertisers with a full range of digital video ad solutions, namely pre-roll advertising spots in over 25 million online video clips played every month in Canada. In addition, Transcontinental was selected as the official eBook solution provider for the Canadian Booksellers Association (CBA). This partnership will empower book retailers to create new revenue streams and bring more titles to market faster, with easy to use, intuitive software designed with online bookstores in mind.
- Transcontinental continued to build on its existing assets. It announced that it will close two printing plants, one in Quebec and one in Manitoba, which will optimize its printing network further. In both cases, production will be transferred to larger plants which have benefitted from investments in the recent past. Transcontinental also continued to grow its newspaper publishing operations by acquiring the weekly newspaper Journal Nouvelles Hebdo in Dolbeau-Mistassini, Quebec and by launching five community newspapers in Quebec.
- In the quarter, Transcontinental also concluded a four-year agreement with Canadian Tire, which will add about $30 to $40 million in incremental revenues on an annual basis, starting in January 2012. This new agreement makes Transcontinental Canadian Tire's leading provider of marketing solutions across Canada.
- Transcontinental also launched its second Sustainability Report, based on the Global Reporting Initiative (GRI). The full web report, a downloadable pdf as well as a highlights brochure are all available at www.transcontinental-ecodev.com.
Highlights for the Six-month Period
In the first six months of fiscal 2011, Transcontinental's revenues increased 2%, from $1,021.6 million to $1,044.8 million. Excluding acquisitions, divestitures and closures, the impact of the exchange rates and the paper component variance, organic revenue growth was 3%, with all three sectors contributing. Similarly, adjusted operating income increased 5%, from $105.6 million to $111.1 million, while the adjusted operating income margin increased from 10.3% to 10.6%. Net income applicable to participating shares went from $93.2 million, or $1.16 per share, to $59.2 million, or $0.73 per share. Excluding unusual items, adjusted net income applicable to participating shares increased 14%, from $61.2 million to $70.0 million. On a per share basis it increased 13%, from $0.76 to $0.86.
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 June 8, 2011 meeting, the Corporation's Board of Directors declared a quarterly dividend of $0.135 per Class A Subordinate Voting Shares and Class B shares. This dividend is payable on July 22, 2011 to participating shareholders of record at the close of business on July 4, 2011. The Corporation thus increased the dividend per participating share by 23%, or $0.10 per share, raising the new annual dividend to $0.54 per share. This increase is a reflection of Transcontinental's strong cash flow position. It follows on the 22.2% increase which took effect on December 8, 2010 and 12.5% increase which took effect on March 17, 2010.
Furthermore, at the same meeting, the Board also declared a quarterly dividend of $0.4207 per share on cumulative 5-year rate reset first preferred shares, series D. This dividend is payable on July 15, 2011. On an annual basis, this represents a dividend of $1.6875 per preferred share.
Upon releasing its quarterly results, Transcontinental will hold a conference call for the financial community today at 4:15 p.m. Media may hear the call in listen-only mode or tune in to the simultaneous audio broadcast on the Corporation's Web site, which will then be archived for 30 days. For media requests for information or interviews, please contact Nancy Bouffard, Director, Internal and External Communications of Transcontinental, at 514 954-2809.
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