Transcontinental Reports Increased Results Due to Acquisitions and Organic Growth
Press release from the issuing company
MONTREAL--June 10, 2004-- Despite difficult market conditions in some niches, Transcontinental Inc. today announced improved results for the second quarter of fiscal 2004. Consolidated revenues reached $522 million, up 10% compared to revenues of $476 million in the corresponding period of fiscal 2003. Operating income before depreciation and amortization rose from $82 million in 2003 to $96 million in 2004, a significant 16% increase. The growth in both revenues and operating income before depreciation and amortization is mainly due to the contribution from the acquisition of U.S. direct marketer CC3 and publisher and printer Optipress early in fiscal 2004, which added $53 million to revenues and $6 million to operating income before depreciation and amortization. Efficiency improvements at newspaper printing plants, the impact of investments made in 2003 and a favourable effect of foreign currency translation also contributed to operating income growth. Management expects to see improved results in the second half of the year and maintains its initial target of earnings per common share of $1.72 to $1.80 (compared to $1.61 for fiscal 2003).
In the second quarter of 2004, net earnings increased by 5%, reaching $39 million compared to $37 million in 2003. This growth was derived from the increase in operating income before depreciation and amortization, which was partially offset by increases in depreciation expense, financial expenses and the effective tax rate. On a per common share basis, net earnings rose 5%, from $0.42 to $0.44. Cash flow from operations before changes in non-cash operating items rose 11%, from $64 million in 2003 to $71 million in 2004.
For the first six months of fiscal 2004, Transcontinental's consolidated revenues grew 3% to $984 million compared to $952 million for the corresponding period in 2003, while operating income before depreciation and amortization rose to $169 million, up 6% over the $159 million reported in 2003. Net income decreased 3%, from $68 million in 2003 to $66 million in 2004; on a per common share basis, it declined from $0.76 to $0.74. This decrease is attributable to lower earnings per share in the first quarter. Cash flow from operations before changes in non-cash operating items rose to $133 million, up 7% over the $124 million reported in 2003.
Daniel Denault, Vice President and Chief Financial Officer of Transcontinental Inc., said: "We are particularly happy with this growth because these second-quarter results are being compared with record second-quarter results in 2003 and 2002. We have continued to distinguish ourselves in our industry in North America thanks to our targeted development in niches with high growth potential, our proven expertise in integrating acquisitions, continual investments in our operations and disciplined financial management. I must also point out that this increase in revenues and earnings results from both acquisitions and organic growth. And once again we have benefited from many initiatives to improve efficiency, reduce costs and develop sales related to our Horizon 2005 business project.
"The Corporation is solidly positioned to pursue growth in its strategic niches," continued Mr. Denault. "Our net funded debt to total capitalization ratio is 36%, which is significantly lower than the long-term target ratio of 45% set by management. Furthermore, we expect better results in the second half of fiscal 2004, due mainly to the contribution from acquisitions and the multiple benefits of our Horizon 2005 business project, and we are maintaining our initial earnings per common share target of $1.72 to $1.80, compared to $1.61 in 2003."
Second Quarter Highlights
In addition to the above items, the highlights of the second quarter of 2004 are as follows:
- Revenues in the Information Products Printing sector grew by 13% and operating income before depreciation and amortization by 28%. This growth is mainly due to the contribution of the Optipress printing activities and to organic growth, particularly in the Newspaper Group, which benefited from major investments made last year, as well as to new measures to reduce costs and improve efficiency. In Mexico, the two Refosa plants in Toluca and Mexico City reported significant improvements in efficiency and quality. The operating income before depreciation and amortization margin rose from 19.2% in the second quarter of 2003 to 21.6% in the second quarter of 2004.
- Revenues in the Marketing Products Printing sector rose 10%, from $208 million in the second quarter of 2003 to $229 million in 2004, while operating income before depreciation and amortization rose 24%, from $26 million to $33 million. This growth stems in large part from the acquisition of U.S. direct marketer CC3 and the turnaround at the Warminster direct marketing plant near Philadelphia. The operating income before depreciation and amortization margin increased from 12.7% to 14.3%.
- Revenues in the Media sector rose 7%, from $127 million in 2003 to $136 million in 2004, while operating income before depreciation and amortization decreased from $26 million to $25 million. Growth in revenues is mainly due to the acquisition of the Optipress newspapers and, in Quebec, the community newspaper publishing and advertising material distribution businesses. Even though women's magazines continued to perform well, operating income before depreciation and amortization decreased slightly because of lower revenues from dailies in the Atlantic provinces and business publications, due to weaker advertising spending by national advertisers. There was also additional investment in the development of some publications. Operating income margin before depreciation and amortization dropped from 20.7% in the second quarter of 2003 to 18.8% in the second quarter of 2004. This temporary decrease is due in part to the impact of the Optipress acquisition. However, the contribution from this acquisition will improve in coming months as the synergies identified materialize.
- The integration of CC3 is proceeding as expected and the initial goal of achieving $6 million in synergies over the next three years will be exceeded. Management is very confident about the prospects for growth in this niche. The 100-day plan for integrating Optipress was successfully completed at the end of May and management is confident that the initial objective of $4 million in synergies will be exceeded.
- As part of the Horizon 2005 business project, about 1500 employees took the training course designed to extend the culture of continuous improvement and employee participation to all levels of the organization. Over 7000 employees have participated in this course since it was introduced, and new Kaizen workshops (including a number of cross-sector workshops) have been completed. In sales development, seven new market teams, each aimed at targeted customer categories in North America, have been added to the six teams established in 2003. Aware of the importance of market teams to Transcontinental's development, management created a new Vice President, Market Management position. Richard Allard, who has close to 25 years experience in business development, marketing and sales with a number of major corporations in the communications industry in North America, was hired to fill the position.
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