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Transcontinental Continues to Stand Out: Strong Increase in Margins for 4Q

Press release from the issuing company

Transcontinental Group continues to distinguish itself in its industry, with continuing operations reaching new levels of profitability in 2001 despite the slowdown in the North American economy. For the year ended October 31, 2001, consolidated revenues from continuing operations stood at $1.78 billion compared with $1.63 billion in 2000, an increase of 9%. Net earnings from continuing operations grew an impressive 23%, from $61.9 million in 2000 to $76.2 million in 2001; on a per common share basis, net earnings rose from $1.66 to $1.90. Note that the number of common shares outstanding increased by four million in that same period, from 37.3 million to 41.3 million. Including the one-time charge related to the disposal of the Corporation's interest in Americ Disc, net income was $20.7 million ($0.52 per common share), compared to $61.1 million ($1.64 per common share) in 2000. Cash flow from continuing operations grew 19%, from $163.2 million in 2000 to $194.3 million in 2001; on a per-share basis, it rose from $4.39 to $4.85. Transcontinental kept its momentum in the fourth quarter despite the significant decrease in North American advertising expenditures. Consolidated revenues from continuing operations grew slightly, from $462.4 million in the fourth quarter of 2000 to $472.5 million in 2001. Net earnings from continuing operations increased 15%, from $21.6 million ($0.58 per common share) in 2000 to $24.8 million ($0.60 per common share) in 2001. Cash flow from continuing operations increased 15%, from $52.2 million ($1.40 per common share) in 2000 to $59.9 million ($1.45 per common share) in 2001. "We issued a notice in October stating that we were maintaining our earnings per share guidance of $1.85 to $1.90 for the year, and we met our commitment by achieving the upper end of the range,'' said Remi Marcoux, Chairman of the Board and Chief Executive Officer. "What is particularly encouraging is that two out of our three operating sectors had a strong fourth quarter, which means that we are starting the new year on a good footing. This excellent performance in a difficult economic context was made possible by our diversified offer of products and services, most of which are less affected by lower advertising expenditures. These include flyer and book printing, door-to-door distribution, regional press, women's magazine publishing and direct marketing printing and solutions in Canada. Also, our customer base is divided among our different products and different sectors in the advertising market. In addition, no single customer accounts for more than 4% of the Corporation's consolidated revenues.'' "In more general terms,'' continued Mr. Marcoux, "our development strategy of focusing on specific niches has proven itself once again. Our flyer printing operations in Mexico had a very good year and there is extraordinary potential for growth there in the years ahead. We are also reaping the benefits of continuous improvements in productivity and cost reduction measures implemented in recent years. These will be intensified and systematized in 2002. Our solid financial performance also reflects our ability to integrate major acquisitions such as Telemedia's magazines. With these efforts we have increased our profit margin before interest, taxes, depreciation and amortization to 15.3% in 2001 compared with 14.4% in 2000, making Transcontinental a leader in this area in North America. Our solid balance sheet puts us in an excellent position to pursue our growth.'' General Comments on Operating Results The following are the main highlights of 2001 according to Luc Desjardins, President and Chief Operating Officer. The Printing sector posted its fifth consecutive year of strong growth and achieved or exceeded most of its financial and strategic objectives, particularly in Mexico. Transcontinental Printing has thus strengthened its position as one of the top NorthAmerican printers in terms of profitability. All operating groups contributed to the increased profits, in particular the Retail group (flyer printing) and Book group. Note that revenues generated outside Canada grew 13% to $467 million in fiscal 2001. In the Media sector, all three units (magazine publishing, regional newspaper publishing and door-to-door distribution) grew over the previous year. This excellent performance illustrates the benefits of being a leader in publications that are both targeted and very strong in their markets, such as women's magazines, making the Corporation less vulnerable to decreases inadvertising spending. The synergies and cost-reduction measures implemented following the acquisition of the Telemedia magazines will exceed the initial target of $8 million. The Interactive Marketing sector completed its reorganization in 2001 and is in a good position to make important profit gainsin fiscal 2002. The excellent performance by Yorkville Printing, one of Transcontinental's direct marketing plants in Canada, helped confirm the Corporation's plan to introduce the Yorkville Printing model, which offers a comprehensive line of services, to the United States, either through internal development or acquisition. The following are highlights by sector for fiscal 2001. Printing * Revenues of $1.29 billion, up 10% over 2000. * Operating income rose to $142.3 million, up 25% over 2000. * Continuation of streamlining measures: final closure of Metropole Litho and transfer of its activities to our other book printing plants, along with consolidation of the Drummondville and Boucherville plants (magazine and catalogue printing). * Acquisition of Imprimerie la Renaissance, in Quebec City, printer of high quality commercial products. * Opening of a new facility by Web Atlantic, in Halifax, printer of The Globe and Mail for the Atlantic provinces. * Expansion of Imprimerie Gagne (book printing), in Louiseville, on Montreal's North Shore. * 10-year extension of the contract to print the daily newspaper The Globe and Mail, valued at more than $750 million. * Conditional 15-year agreement to print the daily newspaper La Presse. * Imprimerie Interweb in Boucherville receives ISO 14,000 certification for environmental management. * Renewal or extension of several contracts with major retail chains. Media * Revenues of $384.6 million, up 16%. * Operating income of $52.4 million, up 26%. * Acquisition of the 18 weekly newspapers from Gesca and UniMedia, as well as two weeklies in the Montreal area, making Transcontinental the second largest publisher of regional publications in Canada. * Successful launch of Metro, the weekday daily newspaper for users of the Montreal subway system, in partnership with Metro International and Gesca. * Launch of the first issue of Elle Canada. Garnering more than a million dollars in advertising revenue, it was the most successful magazine launch in Canadian history. * Launch of the business and finance portal lesaffaires.com and the women's portals MochaSofa.ca and MokaSofa.ca. * Acquisition of servicevie.com and its integration with MokaSofa. * Many national and international awards for our weekly newspapers in Manitoba, Ontario and Quebec, as well as for the newspaper Les Affaires. Interactive Marketing * Revenues of $190.5 million, up 9%. * Operating income of $6.3 million, down 30%. * Implementation of a turnaround plan for the two direct marketing plants in Philadelphia. * Sodema, Transcontinental's customer contact centre, is named Outsourcing Centre of the Year by the Association de marketing direct et de relation clientele de Montreal. Outlook "For Transcontinental as a whole,'' said Remi Marcoux, "we expect growth in earnings to be modest for the first six months of fiscal 2002, but expect the second half of the year to be stronger, allowing us to pursue our growth. The Corporation is targeting earnings per common share from continuing operations ranging between $2.00 and $2.10 in 2002, an increase of 5% to 10% over 2001. Furthermore, Transcontinental has a solid balance sheet and plans to actively seek acquisitions in 2002. Lastly, note that under new Canadian Institute of Chartered Accountants accounting rules, goodwill will no longer be amortized as of 2002. Based on current available information, the Corporation could generate, following implementation of the new accounting rules, additional net income of up to 0.59$ per common share in 2002.'' Corporate Affairs On June 6, 2001, Transcontinental announced that it was posting a one-time non-recurring charge of $52 million related to the adoption of a formal plan of disposal with respect to its interest in Americ Disc and that the Corporation was engaged in negotiations to sell Americ Disc. Subsequently, Transcontinental announced that it had agreed to sell most of its stake in Americ Disc to a group of investors headed by David Littlefield, president and owner of Cycle Software Services, a US supplier of compact discs and related services in Minneapolis, MN. Under the terms of the agreements of August 31, 2001 and October 31, 2001, the Corporation reduced its share in Americ Disc from 50% to 19.9%. Corporate Financing On February 20, 2001, Transcontinental completed the treasury issue of 4,000,000 Class A Subordinate Voting Shares that the Corporation announced on January 30, 2001. Net proceeds from the issue totalled $69 million and were used to reduce the Corporation's debt under the terms of its credit facility and to increase its financial flexibility so as to allow for continued implementation of its growth strategy. By the end of fiscal 2001, the Corporation had reduced its net debt from $398 million to $222 million. New Members of the Board of Directors On September 22, 2001, the Corporation announced the appointment of Lucien Bouchard and Robert Chevrier to its Board of Directors. After a long and fruitful political career, Mr. Bouchard joined the law firm Davies Ward Phillips & Vineberg as senior partner in April 2001. Mr. Bouchard was Premier of Quebec from 1996 to 2001 and Leader of the Official Opposition in the House of Commons from 1993 to 1996. In the period from 1985 to 1990 he was Canada's ambassador toParis, then a member of the Federal Cabinet. For his part, Mr. Chevrier has had a long career as a senior manager, notably as Chairman and Chief Executive Officer of Westburne Inc. from 1993 to its acquisition in 2000 by another company. Dividend Declared At its December 4, 2001 meeting, the Corporation's Board of Directors voted a quarterly dividend of $0.05 per share on Class A Subordinate Voting Shares and Class B Shares. These dividends are payable on January 15, 2002 to shareholders of record at the close of the Toronto Stock Exchange on January 8, 2002. Transcontinental Group's annual meeting of shareholders will be held at 4 p.m. on Wednesday, March 27, 2002, at the Omni Hotel, Salon des Saisons, 1050 Sherbrooke St. West, in Montreal. Profile One of the 10 largest commercial printers in North America, Transcontinental Group is also the biggest publisher of consumermagazines in Canada and one of the top two publishers of regional publications. The Corporation is also engaged in interactive marketing and Internet solutions, as well as the door-to-door distribution of advertising material. Through this fully integrated network, Transcontinental is able to provide its customers with total service. The Corporation has over 10,500 employees in Canada, the United States and Mexico. Transcontinental Group is a Canadian corporation whose Class A Subordinate Voting Shares and Class B shares are listed on the Toronto Stock Exchange under the ticker symbols GRT.A and GRT.B.