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Transcontinental posts best operating performance in its history in 2010

Press release from the issuing company

Montreal – Transcontinental increased its profitability in the fourth quarter compared to a solid fourth quarter in 2009 and, for fiscal 2010 as a whole, had the best operating performance in its history. This brings to six the number of consecutive quarters in which the Corporation has improved its operating income, excluding unusual items, year over year; it also achieved positive organic growth in revenues and profits on an annual basis. We note the good performance of the Printing Sector and of the Media Sector, which increased its digital sales by more than 30%. Revenues for the new Interactive Sector have grown over the past three quarters and it has become the Canadian leader in several strategic segments, including email marketing, e-flyers and mobile applications.

“I am very proud of our results for the fourth quarter and all of fiscal 2010, as they clearly show that we have the strategy, the disciplined management, the financial foundation and the people we need to continue our growth,” said François Olivier, President and Chief Executive Officer of Transcontinental. “In the past year we have strengthened our core business and invested in new services that meet the emerging needs of our customers, while also improving synergies and generating greater profitability.

“I am very optimistic about the future,” Mr. Olivier said. “Having started printing The Globe and Mail on our new Canada-wide network of hybrid presses in October, the three major capital projects in which we have invested some $700 million since 2007 are now fully operational. This will lead to significant cash inflows in 2011 and thereafter. We will use this to further reduce our debt levels and continue investing in the development of new digital and interactive marketing services.”

The Corporation further improved its financial position with a ratio of net debt (including use of the securitization program) to adjusted operating income before amortization of 1.82 as at October 31, 2010 compared to 2.59 as at October 31, 2009. Management’s objective is to continue to reduce this ratio and to maintain it at about 1.50.

Financial Highlights

In the fourth quarter ended October 31, 2010, Transcontinental’s consolidated revenues were stable at $570 million despite a strong fourth quarter in 2009, with organic growth of 1.3%. Adjusted operating income was up 3.8%, from $85.0 million to $88.2 million, with organic growth of 7.3%.

Net income applicable to participating shares rose from $43.1 million in 2009 to $44.5 million in 2010; on a per-participating-share basis, it increased from $0.53 to $0.55. Adjusted net income applicable to participating shares, which excludes unusual items, was up 20.0%, from $52.4 million to $62.9 million; on a per-participating-share basis, it increased 12 cents, from $0.65 to $0.77.

For the 12-month period ended October 31, 2010, the Corporation reported organic growth in revenues of 1.2%. This growth stems from new printing contracts and a recovery in advertising spending in its newspapers and magazines. Consolidated revenues were down 3.6%, from $2.2 billion to $2.1 billion, mainly due to divestitures or closures of plants and publications, the impact of the exchange rate and the paper effect.

Adjusted operating income was up 16.3%, from $217.1 million to $252.5 million. This increase is mainly due to strict controls on costs and the asset portfolio as well as greater efficiency, which largely offset the Corporation’s strategic investments; those investments had an immediate impact on earnings, notably in the digital services developed by the Media Sector. Organic growth in adjusted operating income was 14.9%.

Net income applicable to participating shares rose $248.9 million, from a loss of $82.3 million in 2009 to income of $166.6 million in 2010; on a per-participating-share basis, it went from a net loss of $1.02 to net earnings of $2.06. This remarkable growth stems mainly from a significant increase in operating income and a gain related to the discontinuance of direct mail operations in the United States. Adjusted net income applicable to participating shares, which excludes unusual items, rose 18.7%, from $133.5 million to $158.5 million; on a per-participating-share basis, it increased by 31 cents, from $1.65 to $1.96.

For more detailed financial information, please see Management’s Discussion and Analysis for the fiscal year ended October 31, 2010 and the complete financial statements on our website at www.transcontinental.com, in the Investors section.

Operating Highlights

In 2010, Transcontinental continued to implement its unique growth strategy based on two intertwined components: build the new and strengthen traditional core activities. This strategy reflects its mission to help businesses and advertisers identify, reach and retain their target consumers. Transcontinental is defining itself as a provider of custom marketing solutions on both digital and print communication platforms.

Here, in light of that strategy, are the main operating highlights of fiscal 2010.

Build the New

Transcontinental’s future growth will be based on its ability to offer customers Web-based advertising personalization and interactive marketing communications solutions that meet their new business needs. Fiscal 2010 has a number of examples of actions and achievements in this area.

- To emphasize its goal of becoming the leading provider of interactive marketing solutions in North America, management changed the name of the Marketing Communications Sector to the Interactive Sector and began integrating the entities acquired in recent years. Now grouped under Transcontinental Interactive, these business units are in a better position to combine their forces and offer customers integrated marketing strategy and planning services, data analytics, premedia, online direct marketing, one-to-one marketing, mobile marketing and custom communications, as well as the digital printing of marketing products.

- The development and marketing of mobile applications is a major growth area for Transcontinental. Two acquisitions enriched this offering in 2010: LIPSO, a leading Canadian provider of integrated mobile solutions, and Vortex Mobile (one day after the fiscal year end), a provider of integrated mobile marketing solutions designed to build consumer loyalty. Note that two promising agreements were signed with the Toronto Transit Commission, the third largest public transit system in North America, and the Société de transport de Laval, north of Montreal, to provide custom text-message services for riders.

- Thanks to the power of its brands and its outstanding content, Transcontinental Media continued to expand its presence on the Web and in mobile applications. Today it represents some 150 websites and portals that reach an average of nine million unique visitors a month. Furthermore, the mobile applications launched for Canadian Living, ELLE Canada, ELLE Québec, Investment Executive, Les Affaires, Finance et Investissement, Métro, Weblocal.ca and The Hockey News have been hugely popular with users. In 2010, The Hockey News mobile app thn.mobi hit the one-million user mark, making it one of the top mobile downloads in Canada. Total revenues for digital operations amounted to $36.8 million in 2010, up 33.8% over 2009. Complementing its revenue stream from ad-page sales, Transcontinental now also sells advertising programs that integrate print products and digital applications from the Media Sector, and the rest of company, through its 360 Solutions sales team.

- Transcontinental Media launched a digital advertising representation house, an agency that enhances the offering for advertisers in Media magazines (especially women’s magazines) through exclusive partnerships with the largest online content providers in North America. Transcontinental has thus improved its offer by adding websites that represent name brands in Canada and the United States, thereby giving its advertisers more ways to reach potential customers on Internet.

- The integrated solutions offering for local communities in Canada is one of the Corporation’s main growth areas and combines a broad selection of print and digital channels. In Web-based services in 2010, Transcontinental launched the pre-shopping site dealstreet.ca and its French-language counterpart, publisac.ca. These sites deliver thousands of retail discount coupons every day to consumers, specifically tailored to their geographic locations in Canada. Also in 2010, the Canada-wide search engine weblocal.ca launched the first online reputation management tool for advertisers who subscribe to its services. Transcontinental also has other sites aimed at local communities, including merkado.ca and inmemoriam.ca. In addition, community papers can be viewed on smart devices (iPhone, iPad, etc.)

Strengthen our Traditional Core

Transcontinental also continued to win market share in its publishing and printing operations where it is a leading player in Canada.

- Communities value their local papers for the information and advertising they provide. Transcontinental contributes greatly to the development and enhancement of Canada’s community papers by investing in editorial content, graphic design and state-of-the-art printing equipment. In 2010, we added six Quebec weeklies and their websites (Point de vue Sainte-Agathe, Point de vue Mont-Tremblant and Journal Le Nord in the Laurentians, Abitibi Express, for Val-d’Or and Amos, Courrier Saguenay, and Rive-Sud Express, in Longueuil) to our portfolio of papers. The total number of Transcontinental newspapers in Canada is now 175. Note also the excellent performance of Métro, which is consolidating its position as the most-read weekday paper on the Island of Montreal.

- Transcontinental is Canada’s largest publisher of consumer magazines, with some 40 highly regarded publications that have a loyal following of more than 11 million readers a month, most of them women. In 2010 these magazines continued to refine their content and graphic design to make them more relevant and attractive to the major communities of interest they serve. They also grouped their advertising offer to reflect communities of interest. Along with their websites and mobile applications, they added activities such as the organization of specialized events and the development of a TV component. In 2010, Transcontinental launched Canada’s first French-language bookzine: PREMIUM – l’intelligence en affaires, a high-end bi-monthly management publication that complements the Corporation’s portfolio of business publications. Combining the best of both book and magazine, PREMIUM is available online, on newsstands and by subscription.

- Printing is one of the Corporation’s core competencies and Transcontinental has always been known for its technological innovation and efficiency. Since 2007, the Corporation has invested some $700 million in property, plant and equipment, primarily in three major projects that are now all up and running. After completing the first of these—the plant to print the San Francisco Chronicle in Fremont, California—and the second—modernization of the Transcontinental Transmag plant in Montreal in 2009—our Canada-wide network of hybrid presses to print newspapers and flyers is now also fully operational since October 2010. That project was undertaken to fulfil a new 18-year contract worth $1.7 billion, including $25 million in new business each year, with The Globe and Mail. With this unique network of hybrid presses Transcontinental will achieve important synergies and efficiency gains, while The Globe and Mail and retail customers will benefit from top-notch print quality, as well as formatting and colour options that are unequalled in Canada. Transcontinental will reap the full benefit of these investments in the years ahead.

- In line with its strategy to focus on its core operations and develop its Web-based products and services, in 2010 Transcontinental sold almost all of its direct mail operations in the United States to IWCO Direct, a U.S. company headquartered in Minnesota, for net proceeds of $105.7 million. The facilities were located in Warminster and Hamburg in Pennsylvania, in Fort Worth, Texas, and in Downey, California. Transcontinental is still the leader in direct marketing in Canada.

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.

The following table reconciles GAAP financial measures to non-GAAP financial measures.

Sustainable Development

Transcontinental has long been recognized as a pioneer in environmental protection, so it was natural for the Corporation to incorporate sustainable development into its business plan. This commitment is part of its broader engagement as a corporate citizen to combine business success with social responsibility.

One of the Corporation’s achievements in 2010 was the publication of its first Sustainability Report based on the Global Reporting Initiative (GRI), an internationally recognized standard for methodology. GRI addresses community engagement; talent development; employee health, safety and wellness; raw materials purchasing policy; environmental certifications obtained by the organization’s facilities in North America and efforts made to address the challenges posed by climate change.

In the field, Transcontinental implemented many initiatives to optimize water consumption, energy use and building engineering and to preserve the boreal forest. Transcontinental Northern California, which prints the San Francisco Chronicle, was one of the first printing plants in North America to be built to Leadership in Energy and Environmental Design (LEED) standards. Prior to that, the Corporation’s 35 printing facilities in Canada and the United States obtained triple forest product chain-of-custody certifications, which guarantee that the highest standards of sustainable forest management are being met. In the wake of the recent historic agreement to conserve the boreal forest, signed May 18, 2010, Transcontinental’s paper purchasing policy was recognized for its major contribution to preservation efforts. The boreal forest agreement, signed by 21 major forest companies and nine environmental groups, seeks to preserve a large area of the boreal forest, to protect the endangered woodland caribou, and to apply the highest environmental standards to forest management.

Transcontinental has also contributed to sustainable development in its role as publisher, launching voirvert.ca, the first French-language portal in Canada dedicated to sustainable and environmentally friendly building practices. The site contains invaluable information for industry professionals on the sustainable design, construction and operation of buildings.

In 2010, Transcontinental was honoured with many awards for its contribution to sustainable development. These included, for the seventh year in a row, being ranked by Corporate Knights as one of Canada’s Best 50 Corporate Citizens. In addition, PrintAction magazine awarded the Corporation Best of Show for most environmentally progressive printing company, all categories combined, and Gold for most environmentally progressive printer in Canada. Lastly, in Quebec, Transcontinental won the 2010 Qi Ecoresponsibility Grand Prize.


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