Transcontinental Inc.
TSX : TCL.A
TSX : TCL.B

Transcontinental Inc.

March 09, 2016 11:51 ET

Transcontinental Inc. Announces Its Financial Results for the First Quarter of Fiscal 2016

Highlights

- Revenues increased 1.9%.

- Adjusted operating earnings before depreciation and amortization grew 3.8%.

- Adjusted net earnings attributable to shareholders of the Corporation increased 8.4%.

- Maintained a solid financial position, with a stable net indebtedness ratio of 0.9x.

- Signed a five-year agreement with the Toronto Star to print their daily newspaper, which should take effect in July 2016.

- Signed a five-year exclusive agreement with the Société de transport de Montréal to distribute the Métro newspaper in the Montreal metro system, which took effect on February 1, 2016.

- Increased the dividend per participating share by 9%, to $0.74 per year.

MONTREAL, QUEBEC--(Marketwired - March 9, 2016) - Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B) announces its results for the first quarter of Fiscal 2016, which ended January 31, 2016.

"The growth in our revenues and profitability in the first quarter confirms the success of our strategy," said François Olivier, President and Chief Executive Officer of TC Transcontinental. "In our printing division, we continued to sign new agreements and adapt our printing platform to industry realities. In our packaging division, we successfully completed the integration of our most recent acquisition and we are satisfied with the results. As for the Media Sector, the acceleration of the transformation of the advertising market led to lower results for the newspapers in our Local Solutions Group. To better adapt to new market realities, we have taken important measures to give ourselves the agility needed to adjust our costs and our service offering."

"We will continue to optimize our operations in the printing division and grow our packaging division through acquisitions and sales development. We have a sound financial position and continue to generate significant cash flows that will enable us to pursue our transformation," concluded François Olivier.

Financial Highlights

(in millions of dollars, except per share amounts) Q1-2016 Q1-2015 %
Revenues 498.9 489.7 1.9
Adjusted operating earnings before depreciation and amortization (Adjusted EBITDA) 83.9 80.8 3.8
Adjusted operating earnings (Adjusted EBIT) 57.1 55.7 2.5
Adjusted net earnings attributable to shareholders of the Corporation 41.4 38.2 8.4
Per share 0.53 0.49 8.2
Net earnings attributable to shareholders of the Corporation 37.3 37.9 (1.6 )
Per share 0.48 0.49 (2.0 )
Please refer to the table "Reconciliation of Non-IFRS financial measures" in this press release.

2016 First Quarter Results

Revenues for the first quarter of 2016 went from $489.7 million to $498.9 million. The increase is mainly attributable to the contribution from the acquisition of Ultra Flex Packaging and the appreciation of the U.S. dollar against the Canadian dollar. In our Printing division, revenues remained relatively stable when excluding the effect of the loss of a U.S. customer and a Canadian retailer early in 2015. In addition, the timing of purchases from an important client had an impact on the Packaging division. In the Media Sector, the decline in advertising revenues continues to have a significant impact on the results of our publishing activities, mainly within newspapers in the Local Solutions Group.

Adjusted operating earnings went from $55.7 million to $57.1 million, an increase of 2.5%, in the first quarter of 2016. This performance is attributable to the net effect of an acquisition, disposals and closures and, to the favourable effect of the exchange rate as well as to the favourable effect of a decrease in the stock-based compensation expense. The increase is also attributable to the optimization of the cost structure. It was however mitigated by the aforementioned decrease in revenues in the Media Sector. The recent investments in the structure of the packaging division to promote and support the acquisition and sales development strategy also explain the slight decrease in organic growth.

Adjusted net earnings attributable to shareholders of the Corporation increased 8.4%, from $38.2 million, or $0.49 per share, to $41.4 million, or $0.53 per share. This performance is due to an increase in adjusted operating earnings as well as a decrease in adjusted income taxes and net financial expenses. Net earnings attributable to shareholders of the Corporation decreased from $37.9 million, or $0.49 per share, to $37.3 million, or $0.48 per share. This slight decrease is explained by the sale of a building in the first quarter of 2015 which offset the increase in adjusted net earnings attributable to shareholders of the Corporation.

Other Highlights

  • On November 25, 2015, TC Media launched the TC Media Nouvelles app in the Quebec market, signalling a major milestone in the development of its local digital media offering for businesses and communities.
  • On January 26, 2016, the Corporation announced the transfer of its marketing product printing activities from Transcontinental Québec to other plants in its network. This decision will result in the closure of the Transcontinental Québec plant by April 30, 2016.

For more detailed financial information, please see Management's Discussion and Analysis for the first quarter ended January 31st, 2016 as well as the financial statements in the "Investors" section of our website at www.tc.tc

Outlook 2016

Flyer printing volume is expected to remain stable throughout the remainder of fiscal 2016. In addition, the success of our in-store marketing product offering for retailers and the impact of the previously announced new contracts, including those to print the Toronto Star and the Census of Canada, should act as positive catalysts during the year. However, these items should be offset by the negative impact of the advertising market on our magazine, newspaper and marketing product printing activities. Lastly, we will continue to improve our operational efficiency in order to ensure that we maintain the long-term profitability of the printing division.

We successfully completed our 100-day integration plan with respect to the acquisition of Ultra Flex Packaging and the evolution of our national sales force enables us to continue developing new business opportunities. Furthermore, the recent investments in order to promote and support our acquisition and sales development strategy will have an unfavourable impact on results for the remainder of fiscal 2016.

Within the Media Sector, the significant impact of the transformation of the advertising market should continue to affect our newspaper publishing activities. In order to reduce costs and better adapt to these market dynamics, we have put in place a new operational structure that allows for the necessary agility with a particular focus on the profitability of our products which will ensure their viability and perenity.

Lastly, we expect to continue generating significant cash flows during the next quarters, and our excellent financial position should permit us to continue our transformation in the flexible packaging industry. We will maintain our disciplined acquisition approach in this promising market in order to invest in quality assets that meet our strategic criteria.

Reconciliation of Non-IFRS Financial Measures

Financial information has been prepared in conformity with IFRS. However, certain measures used in this press release do not have any standardized meaning under IFRS and could be calculated differently by other companies. We believe that many readers analyze our results based on certain non-IFRS financial measures because such measures are normalized for evaluating the Corporation's operating performance. Management uses such non-IFRS financial information to evaluate the performance of its operations and managers. These measures should be considered in addition to, not as a substitute for or superior to, measures of financial performance prepared in accordance with IFRS.

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

First quarter ended January 31
(in millions of dollars, except per share amounts) 2016 2015
Net earnings attributable to shareholders of the Corporation $ 37.3 $ 37.9
Non-controlling interests - (0.2 )
Net earnings from discontinued operations - 2.2
Income taxes 11.2 12.4
Share of net earnings in interests in joint ventures, net of related taxes - (0.1 )
Net financial expenses 3.1 3.9
Restructuring and other costs (revenues) 5.5 (0.4 )
Adjusted operating earnings $ 57.1 $ 55.7
Depreciation and amortization 26.8 25.1
Adjusted operating earnings before depreciation and amortization $ 83.9 $ 80.8
Net earnings attributable to shareholders of the Corporation $ 37.3 $ 37.9
Net earnings from discontinued operations - 2.2
Restructuring and other costs (revenues), net of related taxes 4.1 (1.9 )
Adjusted net earnings attributable to shareholders of the Corporation $ 41.4 $ 38.2
Weighted average number of shares outstanding 78.0 78.0
Adjusted net earnings attributable to shareholders of the Corporation per share $ 0.53 $ 0.49




As at
January 31,
2016




As at
October 31,
2015


Long-term debt $ 347.5 $ 347.7
Current portion of long-term debt 30.2 36.4
Cash (25.6 ) (38.6 )
Net indebtedness $ 352.1 $ 345.5
Adjusted operating earnings before depreciation and amortization (last 12 months) $ 381.8 $ 378.7
Net indebtedness ratio 0.9 x 0.9 x

Dividend

The Corporation's Board of Directors declared a quarterly dividend of $0.185 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on April 21, 2016 to shareholders of record at the close of business on April 4, 2016. The Corporation thus increased the dividend per participating share by 9%, or $0.06, raising the annual dividend from $0.68 to $0.74 per share. This increase reflects TC Transcontinental's solid cash flow position.

Additional Information

Annual General Meeting of Shareholders

Transcontinental Inc. will hold its Annual General Meeting of Shareholders today at 2:00 p.m. at the Centre Mont-Royal, 2200 Mansfield Street, in Montreal. For those who are unable to attend in person, the Corporation will webcast (audio only) the meeting and post it on its website at www.tc.tc as of March 10.

Conference Call

Upon releasing its first quarter 2016 results, the Corporation will hold a conference call for the financial community today at 4:15 p.m. The dial-in numbers are 1 647 788-4922 or 1 877 223-4471. Media may hear the call in listen-in only mode or tune in to the simultaneous audio broadcast on the Corporation's website, which will then be archived for 30 days. For media requests or interviews, please contact Nathalie St-Jean, Senior Advisor, Communications of TC Transcontinental, at 514-954-3581.

Profile

Canada's largest printer, with operations in print, flexible packaging, publishing and digital media, TC Transcontinental's mission is to create products and services that allow businesses to attract, reach and retain their target customers.

Respect, teamwork, performance and innovation are strong values held by the Corporation and its employees. The Corporation's commitment to all stakeholders is to pursue its business and philanthropic activities in a responsible manner.

Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B), known as TC Transcontinental, has over 8,000 employees in Canada and the United States, and revenues of C$2.0 billion in 2015. Website www.tc.tc

Forward-looking Statements

Our public communications often contain oral or written forward-looking statements which are based on the expectations of management and inherently subject to a certain number of risks and uncertainties, known and unknown. By their very nature, forward- looking statements are derived from both general and specific assumptions. The Corporation cautions against undue reliance on such statements since actual results or events may differ materially from the expectations expressed or implied in them. Forward-looking statements may include observations concerning the Corporation's objectives, strategy, anticipated financial results and business outlook. The Corporation's future performance may also be affected by a number of factors, many of which are beyond the Corporation's will or control. These factors include, but are not limited to, the economic situation in the world and particularly in Canada and the United States, structural changes in the industries in which the Corporation operates, the exchange rate, availability of capital, energy costs, competition, the Corporation's capacity to engage in strategic transactions and integrate acquisitions into its activities, the regulatory environment, the safety of its packaging products used in the food industry, innovation of its offering and concentration of its sales in certain segments. The main risks, uncertainties and factors that could influence actual results are described in Management's Discussion and Analysis (MD&A) for the fiscal year ended on October 31st, 2015, in the latest Annual Information Form and have been updated in the MD&A for the first quarter ended January 31st, 2016.

Unless otherwise indicated by the Corporation, forward-looking statements do not take into account the potential impact of nonrecurring or other unusual items, nor of divestitures, business combinations, mergers or acquisitions which may be announced after the date of March 9, 2016.

The forward-looking statements in this press release are made pursuant to the "safe harbour" provisions of applicable Canadian securities legislation.

The forward-looking statements in this release are based on current expectations and information available as at March 9, 2016. Such forward-looking information may also be found in other documents filed with Canadian securities regulators or in other communications. The Corporation's management disclaims any intention or obligation to update or revise these statements unless otherwise required by the securities authorities.

CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited
Three months ended
January 31
(in millions of Canadian dollars, except per share data) 2016 2015
Revenues $ 498.9 $ 489.7
Operating expenses 415.0 408.9
Restructuring and other costs (revenues) 5.5 (0.4 )
Operating earnings before depreciation and amortization 78.4 81.2
Depreciation and amortization 26.8 25.1
Operating earnings 51.6 56.1
Net financial expenses 3.1 3.9
Earnings before share of net earnings in interests in joint ventures and income taxes 48.5 52.2
Share of net earnings in interests in joint ventures, net of related taxes - 0.1
Income taxes 11.2 12.4
Net earnings from continuing operations 37.3 39.9
Net earnings from discontinued operations - (2.2 )
Net earnings 37.3 37.7
Non-controlling interests - (0.2 )
Net earnings attributable to shareholders of the Corporation $ 37.3 $ 37.9
Net earnings per share - basic
Continuing operations $ 0.48 $ 0.51
Discontinued operations - (0.02 )
$ 0.48 $ 0.49
Net earnings per share - diluted
Continuing operations $ 0.48 $ 0.51
Discontinued operations - (0.03 )
$ 0.48 $ 0.48
Weighted average number of shares outstanding - basic (in millions) 78.0 78.0
Weighted average number of shares - diluted (in millions) 78.2 78.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
Three months ended
January 31
(in millions of Canadian dollars) 2016 2015
Net earnings $ 37.3 $ 37.7
Other comprehensive income
Items that will be reclassified to net earnings
Net change related to cash flow hedges
Net change in the fair value of derivatives designated as cash flow hedges (6.5 ) (9.1 )
Reclassification of the net change in the fair value of derivatives designated as cash flow hedges in prior periods, recognized in net earnings during the period
2.0

0.5
Related income taxes (1.3 ) (2.3 )
(3.2 ) (6.3 )
Cumulative translation differences
Net unrealized exchange gains on the translation of the financial statements of foreign operations 19.6 19.0
Net change in the fair value of derivatives designated as hedges of net investments in foreign operations (0.7 ) -
Related income taxes (0.2 ) -
19.1 19.0
Items that will not be reclassified to net earnings
Changes in actuarial gains and losses in respect of defined benefit plans
Actuarial gains (losses) in respect of defined benefit plans (17.9 ) 7.5
Related income taxes (4.8 ) 2.0
(13.1 ) 5.5
Other comprehensive income (1) 2.8 18.2
Comprehensive income $ 40.1 $ 55.9
Attributable to:
Shareholders of the Corporation $ 40.1 $ 56.1
Non-controlling interests - (0.2 )
$ 40.1 $ 55.9
(1) Other comprehensive income is attributable to continuing operations.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Unaudited
(in millions of Canadian dollars)
Attributable to shareholders of the Corporation


Share
capital


Contributed
surplus


Retained
earnings
Accumulated
other
comprehensive
income



Total

Non-
controlling
interests



Total equity
Balance as at October 31, 2015 $ 368.2 $ 3.2 $ 625.5 $ 19.4 $ 1,016.3 $ - $ 1,016.3
Net earnings - - 37.3 - 37.3 - 37.3
Other comprehensive income - - - 2.8 2.8 - 2.8
Shareholders' contributions and distributions to shareholders
Share redemptions (3.0 ) - (6.4 ) - (9.4 ) - (9.4 )
Exercise of stock options 0.2 - - - 0.2 - 0.2
Dividends - - (13.2 ) - (13.2 ) - (13.2 )
Balance as at January 31, 2016 $ 365.4 $ 3.2 $ 643.2 $ 22.2 $ 1,034.0 $ - $ 1,034.0
Balance as at October 31, 2014 $ 366.0 $ 3.4 $ 415.6 $ 7.1 $ 792.1 $ 1.0 $ 793.1
Net earnings - - 37.9 - 37.9 (0.2 ) 37.7
Other comprehensive income - - - 18.2 18.2 - 18.2
Shareholders' contributions and distributions to shareholders
Exercise of stock options 0.8 (0.1 ) - - 0.7 - 0.7
Dividends - - (12.5 ) - (12.5 ) - (12.5 )
Stock-option based compensation - 0.1 - - 0.1 - 0.1
Balance as at January 31, 2015 $ 366.8 $ 3.4 $ 441.0 $ 25.3 $ 836.5 $ 0.8 $ 837.3
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited
(in millions of Canadian dollars)



As at
January 31,
2016


As at
October 31,
2015
Current assets
Cash $ 25.6 $ 38.6
Accounts receivable 338.8 393.0
Income taxes receivable 9.4 15.2
Inventories 107.8 116.3
Prepaid expenses and other current assets 19.1 16.2
500.7 579.3
Property, plant and equipment 571.3 567.5
Intangible assets 260.6 257.5
Goodwill 468.8 459.5
Investments in joint ventures 2.5 2.5
Deferred taxes 212.2 197.1
Other assets 40.8 50.1
$ 2,056.9 $ 2,113.5
Current liabilities
Accounts payable and accrued liabilities $ 259.0 $ 339.7
Provisions 9.0 10.2
Income taxes payable 13.1 20.7
Deferred revenues and deposits 61.4 51.4
Current portion of long-term debt 30.2 36.4
372.7 458.4
Long-term debt 347.5 347.7
Deferred taxes 69.0 79.9
Provisions 4.2 5.7
Other liabilities 229.5 205.5
1,022.9 1,097.2
Equity
Share capital 365.4 368.2
Contributed surplus 3.2 3.2
Retained earnings 643.2 625.5
Accumulated other comprehensive income 22.2 19.4
1,034.0 1,016.3
$ 2,056.9 $ 2,113.5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three months ended
January 31
(in millions of Canadian dollars) 2016 2015
Operating activities
Net earnings $ 37.3 $ 37.7
Less: Net earnings from discontinued operations - (2.2 )
Net earnings from continuing operations 37.3 39.9
Adjustments to reconcile net earnings from continuing operations and cash flows from operating activities:
Depreciation and amortization 33.6 31.5
Financial expenses on long-term debt 4.6 5.6
Net losses (gains) on disposal of assets 0.4 (6.9 )
Income taxes 11.2 12.4
Net foreign exchange differences and other (13.6 ) (3.7 )
Cash flows generated by operating activities before changes in non-cash operating items and income taxes paid 73.5 78.8
Changes in non-cash operating items (1) (11.9 ) (13.1 )
Income taxes paid (27.3 ) (40.8 )
Cash flows from continuing operating activities 34.3 24.9
Investing activities
Business disposals 0.5 0.3
Acquisitions of property, plant and equipment (14.1 ) (13.0 )
Disposals of property, plant and equipment - 0.2
Increase in intangible assets (4.6 ) (5.5 )
Cash flows from investments in continuing operations (18.2 ) (18.0 )
Financing activities
Reimbursement of long-term debt (0.1 ) (65.0 )
Net increase (decrease) in credit facility (8.0 ) 59.2
Financial expenses on long-term debt (5.4 ) (7.8 )
Interest received related to previous tax reassessments 5.4 -
Exercise of stock options - 0.7
Dividends (13.2 ) (12.5 )
Share redemptions (9.4 ) -
Cash flows from the financing of continuing operations (30.7 ) (25.4 )
Effect of exchange rate changes on cash denominated in foreign currencies 1.6 3.4
Net change in cash from continuing operations (13.0 ) (15.1 )
Net change in cash from discontinued operations - 4.3
Cash at beginning of period 38.6 35.2
Cash at end of period $ 25.6 $ 24.4
Non-cash investing activities
Net change in capital asset acquisitions financed by accounts payable $ (0.8 ) $ (0.6 )
(1) Includes an amount of $31.0 millions that was received and recognized as deferred revenues during the three-month period ended January 31, 2016.

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