Transcontinental Announces First Quarter Earnings Up 10% and a Dividend Increase of 22%
Press release from the issuing company
MONTREAL--March 17, 2005-- Transcontinental's momentum continued in the first quarter of 2005 with a significant increase in revenues, operating income before depreciation and amortization and net income. An increase in sales volume and the Corporation's cost-reduction program more than offset lower sales prices in some niches and the negative impact of the exchange rate. Note that all three sectors contributed positively to organic growth in revenue and operating income before depreciation and amortization in the quarter.
"We are very satisfied with our first quarter results because we have maintained our momentum from the second half of fiscal 2004," said Daniel Denault, vice president and chief financial officer of Transcontinental. "Our systematic efforts to develop cross-selling initiatives, combined with our capital investments over the past several years and numerous programs to improve efficiency under our Horizon 2005 business project, have generated organic growth of 4% in revenues and 7% in operating income before depreciation and amortization. The highlight of the quarter was the development of our direct marketing operations in the United States and increased sales volume with a number of customers.
"Management is thus maintaining its initial earnings per share objective, excluding non-recurring items, of $1.74 to $1.82 for 2005" continued Mr. Denault. "This represents an increase of 2% to 6% over fiscal 2004, and 9% to 13% excluding the anticipated negative exchange rate impact of $0.12 per share; it is therefore in line with our long-term organic growth objective. Another sign that management is confident in the company's future is that it is also announcing a 22% dividend increase for common shareholders."
In the first quarter ended January 31, 2005, Transcontinental reported consolidated revenues of $517 million versus $460 million in the same quarter of 2004, a 12% increase, while operating income before depreciation and amortization rose to $79 million, up 7% over $74 million in 2004. The increases of 4%, or $18 million, in organic growth in revenues and 7%, or $5 million, in organic growth in operating income before depreciation and amortization stem primarily from the following: magazine and catalogue printing, direct marketing in the United States, flyer printing, and the distribution of advertising material. The three acquisitions completed in fiscal 2004 - U.S. direct marketer CC3, printer and publisher Optipress in the Atlantic provinces and Canadian magazine publisher Avid Media - added $43 million to revenues and $2 million to operating income before depreciation and amortization. The integration of CC3 is progressing as planned with a 10% revenue increase from organic growth. However, the seasonal nature of Avid Media's operations and a lower than anticipated contribution from Optipress mitigated the contribution from acquisitions to consolidated operating income before depreciation and amortization. The results of these two acquisitions, although creating a temporary decrease in Transcontinental's consolidated operating income before depreciation and amortization, should improve in upcoming quarters. The paper effect had a $4 million positive impact on revenues without affecting operating income before depreciation and amortization. Finally, fluctuations in the exchange rate between the Canadian dollar and its U.S. and Mexican counterparts decreased revenues by $8 million and operating income before depreciation and amortization by $2 million.
Net income rose 10%, from $26 million in the first quarter of 2004 to $29 million in 2005, due to the increase in operating income before depreciation and amortization and the decrease in financial expenses. On a per-common-share basis, it rose from $0.30 to $0.33. Lastly, as at January 31, 2005, Transcontinental's net indebtedness amounted to $378 million and its ratio of net funded debt to total capitalization was 27%, compared to 38% in the first quarter of 2004; including the acquisition of JDM, Inc., completed on February 14, 2005, the ratio is 32%.
Highlights of Operations
The following are the main operating highlights for the first quarter of 2005 by sector:
- Revenues in the Information Products Printing sector rose by 9%, from $165 million in the first quarter of 2004 to $179 million in 2005, while operating income before depreciation and amortization rose 10%, from $30 million to $33 million. Organic growth in revenues and operating income before depreciation and amortization came mainly from the Magazine and Catalogue Group, which increased its sales volume, primarily in the United States, and benefited from new titles in the Media sector. Mexican operations also had a good quarter, benefiting from last year's sales development efforts. Operating income margin before depreciation and amortization rose from 18.3% in the first quarter of 2004 to 18.5% in the first quarter of 2005.
- Revenues in the Marketing Products Printing sector rose from $199 million in the first quarter of 2004 to $234 million in 2005, an increase of 18%, while operating income before depreciation and amortization rose 15%, from $25 million in the first quarter of 2004 to $28 million in 2005. The driver of growth was the Retail Group and direct marketing operations in the United States, which was partially offset by commercial printing in Canada, a highly competitive segment. Operating income margin before depreciation and amortization decreased from 12.5% in the first quarter of 2004 to 12.1% in 2005 due to the negative impact of the exchange rate and pricing pressure in commercial printing.
- Revenues in the Media sector rose 10%, from $117 million in the first quarter of 2004 to $130 million in 2005, while operating income before depreciation and amortization rose 3%, from $20 million to $21 million. This growth came mainly from door-to-door advertising material distribution, which had a record quarter, and community newspaper publishing in Quebec. These elements were partially offset, at the operating income before depreciation and amortization level, by the negative contribution from acquisitions, due to the seasonal nature of the operations and greater investments in our brands. Operating income margin before depreciation and amortization therefore decreased from 16.9% in the first quarter of 2004 to 15.8% in 2005.
- On November 16, 2005, the Corporation announced a $53 million special investment: the purchase of three printing presses and related automated finishing equipment. Two of the new presses will be used to print magazines, catalogues and other commercial products, while the third will be used to print books, primarily for the U.S. market. These presses will significantly increase productivity and flexibility, as well as the overall quality of printed products.
Management's Discussion and Analysis for the first quarter of 2005, along with full financial statements, are posted on the home page of the Corporation's Web site at www.transcontinental.com.
Upon releasing its quarterly results, Transcontinental will hold a conference call with financial analysts today at 4:15 p.m. EST. There will be a simultaneous audio broadcast on Transcontinental's website, which will be archived for 30 days.
At its March 17, 2005 meeting, the Corporation's Board of Directors voted a quarterly dividend of $0.055 per share on Class A Subordinate Voting Shares and Class B Shares, which is an increase of 22% over the dividend paid last quarter. These dividends are payable on May 2, 2005 to shareholders of record at the close of business on April 11, 2005. On an annual basis, this represents a dividend of $0.22 per common share.
On February 14, 2005, Transcontinental acquired the operating assets of JDM, Inc., through its wholly-owned subsidiary Transcontinental Direct U.S.A. Inc. This transaction raises Transcontinental Direct U.S.A.'s production capacity to more than 5 billion direct mail pieces annually while also adding JDM's state-of-the-art production and control systems, mailing logistics, and strong management team. JDM has five facilities in Pennsylvania comprising a printing plant and a main direct mail lettershop, along with three other direct mail facilities. It is a fast-growing company renowned for its operational excellence and a market leader in high-speed inkjet personalization technology. JDM has over 1100 employees and reported revenue of C$112 million in 2004.
On March 1, 2005, Transcontinental received the second and final portion of proceeds from its issue of US$100 million in Unsecured Senior Notes to a group of investors through a private placement in the United States on October 27, 2004. The notes were issued in four tranches maturing in 7, 9 and 11 years and carry floating interest rates. Of the US$100 million, US$52.5 million was received in October 2004 and US$47.5 million on March 1, 2005. The latter amount was used to finance part of the recent acquisition of the operating assets of JDM, Inc. in the United States.
Early in the second quarter, two awards drew attention to the high regard Transcontinental's management team enjoys in the Canadian and Quebec business communities. Remi Marcoux, Transcontinental's executive chairman of the board, was named the fourth most respected CEO in Canada in the Tenth Annual Survey of Canada's Most Respected Corporations. The KPMG survey group was composed of 263 leading CEOs in Canada. Subsequently, Luc Desjardins, president and chief executive officer of Transcontinental, was one of three Quebec business leaders honoured for their exemplary management practices at the Les Nouveaux PerformantsTM awards ceremony.
Transcontinental is also highly regarded in Canada for its exemplary corporate governance, as well as its integrity and the transparency of its communications with investors. At the 2005 edition of the IR Magazine gala, the most important investor relations awards in Canada, Transcontinental won in two categories. Stephane Milot, Transcontinental's director of public and investor relations, was awarded the prize for "Best Investor Relations Officer" in the "small cap" category. Transcontinental also shared the "Best Use of Conferencing" award with a major Canadian retailer.
Lastly, Transcontinental's Annual Meeting of Shareholders will be held on Wednesday, March 30, 2005, at 4 p.m., at Hotel Omni Mont-Royal, Salon des Saisons, 1050 Sherbrooke St. West in Montreal. The meeting will be preceded by a press conference at the same location at 11 a.m. There will be an audio broadcast of the event on the Corporation's website.
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