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Transcontinental Boosts Revenue and Profitability in Q1

Thursday, March 14, 2013

Press release from the issuing company

Montreal – Revenues for Transcontinental Inc. were up 8.4% in the first quarter, from $487.6 million to $528.7 million, mainly due to the acquisition of Quad/Graphics Canada, Inc. and Redux Media and the Métro Montréal daily paper in the Media Sector. This increase was, however, partly offset by the termination of the Zellers flyer printing and distribution contract due to the closure of the Zellers stores, and the incentives granted upon the renewal of some contracts in 2012.

Highlights

  • Declared special dividend of $1.00 per participating share or approximately $78 million.
  • Received US$200 million pursuant to the renegotiation of the Hearst Corporation agreement.
  • Extended several multi-year agreements, namely with Best Buy and Future Shop, to print flyers with the addition of flyer distribution primarily in Quebec and the Atlantic provinces.
  • Concluded new multi-year printing agreements for new business valued at about $30 million annually.
  • Appointment of Ted Markle as President of TC Media.
  • Acquired Groupe Modulo, publisher of French-language educational materials.

Adjusted operating income rose 6.3% in the first quarter, from $43.0 million to $45.7 million. The increase stems mainly from the synergies obtained from the acquisition of Quad/Graphics Canada, Inc. and the optimization of the operating structure in digital activities. However, the increase was mitigated by the reasons mentioned above. Net income applicable to participating shares rose, from a loss of $33.3 million, or $0.41 per share, to a profit of $17.8 million, or $0.23 per share. Note that last year the loss of $0.41 per share was mainly related to unusual items charged to income in the first quarter of 2012. Excluding unusual items, the adjusted net income applicable to participating shares rose 5.2%, from $27.1 million, or $0.33 per share, to $28.5 million, or $0.37 per share.

"The growth in our revenues and profitability demonstrates how effectively we executed our strategy," said François Olivier, President and Chief Executive Officer of TC Transcontinental. "In the Printing Sector, with the ongoing integration of Quad/Graphics Canada, Inc., we have generated further synergies this quarter. We are confident that we will be able to keep improving our profitability over last year given the additional synergies we expect to generate through the ongoing integration of Quad/Graphics Canada, Inc., and with the additional business from new multi-year agreements valued at about $30 million per year which will begin in the next two quarters. We continue to gain our customers' confidence with the quality and diversity of our solutions and expertise."


Other Highlights

Printing Sector

  • Concluded new multi-year printing agreements with several retailers, namely Shoppers Drug Mart, to print point-of-sale promotional materials, and with Safeway U.S. to print flyers. These agreements will add about $30 million in annual sales.
  • Extended several multi-year agreements, including a contract to print flyers for the well-known brands Best Buy and Future Shop, with the addition of flyer distribution in Quebec and the Atlantic provinces. These extensions demonstrate our customers' confidence in our expertise and the quality of products and services.
  • Continued consolidation and restructuring of the printing network as part of the ongoing integration of Quad/Graphics Canada, Inc. This allows us to focus on the use of our most productive equipment and leverage the more than $700 million invested over the past several years to upgrade the printing platform.

Media Sector

  • Launched four flagship brands on iPad. The iPad issues of Coup de pouceCanadian LivingELLE Québec andElle Canada enhance TC Transcontinental's multi-platform offering with inspiring and relevant content as well as interactive features exclusive to the platform.
  • Acquired Groupe Modulo, publisher of French-language educational materials. This transaction enriches TC Media's offering in the education field by further strengthening its leading position in higher education in Quebec. It also increases its presence in the educational market in Francophone communities in the rest of Canada.

Financial Highlights

  • Received US$200 million pursuant to the renegotiation of the Hearst Corporation agreement.
  • In the first quarter ended January 31, 2013, under its share purchase program, the Corporation redeemed 1,161,600 Class A Subordinate Voting Shares at a weighted average price of $9.98, for a total consideration of $11.6 million. As of today, the Corporation has completed 96% of its share purchase program. TC Transcontinental plans to renew its normal course issuer bid when the current program expires, subject to regulatory approval.
  • Extension for one year of the $400 million credit facility. The facility matures in February 2018. At January 31, 2013, an amount of $148 million had been drawn on this facility.

Sustainable Development

  • Publication of the fourth annual sustainability report, titled "simplify, collaborate, innovate". With the level of information provided in the report, TC Transcontinental has maintained its application level B rating under the Global Reporting Initiative. For more information about TC Transcontinental's commitments, achievements and progress in sustainability, please refer to the 2012 report on the Corporation's website at www.tc.tc/sustainability.

For more detailed financial information, please see Management's Discussion and Analysis for the first quarter ended January 31st, 2013 as well as the financial statements in the "Investors" section of our website at www.tc.tc


Outlook

The contribution from the synergies obtained from the integration of Quad/Graphics Canada, Inc. will continue, particularly in the second and third quarters of 2013, partially offset however by the closure of the Zellers stores. New agreements to print flyers and marketing products worth an annualized value of around $30 million are slated to start at the end of the second quarter of 2013.

The Media Sector will continue to be affected by difficult market conditions, particularly with respect to advertising spending by our national and local clients. To limit the potential impact of these conditions, efficiency measures are being implemented to protect and improve the sector's profit margins. We will also pursue our efforts to improve the profitability of our digital and interactive offering by further reducing our cost base while continuing to invest in the development of new products.

Significant excess cash flows will continue to be generated in coming quarters, and we plan to invest about $70 million in property, plant and equipment, as well as intangible assets, in fiscal 2013. Our excellent financial position will also allow us to distribute a special dividend in the second quarter of 2013 of $1.00 per participating share, totaling approximately $78 million, while sustaining the financial flexibility that enables us to make strategic acquisitions and invest in in-house projects. 

 

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