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

Transcontinental Inc.

December 08, 2015 06:00 ET

Transcontinental Inc. Announces its Results for Fiscal 2015

Fiscal 2015 Highlights

- Revenues increased to $2,002.2 million in 2015.

- Adjusted operating earnings before depreciation and amortization grew 6.9%.

- Adjusted net earnings applicable to participating shares increased 13.4%.

- Completed the sale of consumer magazines for $56.0 million.

- Completed the acquisition of Ultra Flex Packaging Corp., a supplier of flexible packaging products located in Brooklyn, New York.

- Obtained new contracts in the Printing and Packaging Sector valued at over $30 million, on an annualized basis.

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

MONTREAL, QUEBEC--(Marketwired - Dec. 8, 2015) - Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B) announces its results for fiscal 2015, which ended October 31, 2015.

"We had an excellent year in 2015, said François Olivier, President and Chief Executive Officer of TC Transcontinental. Our printing division and our Media Sector showed once again resilience by increasing their profitability in a market in transformation."

"In the printing division, we continued to optimize our platform, sign new agreements with customers and develop the promising in-store marketing market. In the Media Sector, we significantly increased our profitability by proactively managing our portfolio of publications, growing our digital sales and expanding our non-advertising sources of revenues."

"In addition, I am especially satisfied with the major strides we made in our packaging division, a niche with a strong growth potential, continued François Olivier. Not only did we double our position in the market with the acquisition of Ultra Flex Packaging at the end of the year, we also signed a multi-year agreement with a leader in the North American dairy industry."

"Lastly, thanks to our core assets' ability to generate significant cash flows and our sound financial position, we are well positioned to continue our transformation."

Financial Highlights

(in millions of dollars, except per share data) Q4-2015 Q4-2014 % 2015 2014 %
Revenues 540.1 548.2 (1.5 ) 2,002.2 1,990.4 0.6
Adjusted operating earnings before depreciation and amortization (Adjusted EBITDA) 114.3 119.1 (4.0 ) 378.7 354.1 6.9
Adjusted operating earnings (Adjusted EBIT) 87.8 92.4 (5.0 ) 276.7 253.2 9.3
Adjusted net earnings applicable to participating shares 60.6 63.6 (4.7 ) 186.7 164.7 13.4
Per share 0.78 0.81 (3.7 ) 2.39 2.11 13.3
Net earnings applicable to participating shares 100.2 9.0 - 262.6 105.1 -
Per share 1.28 0.12 - 3.36 1.35 -
Please refer to the table "Reconciliation of Non-IFRS financial measures" in this press release.

2015 Fourth Quarter Results

Revenues for the fourth quarter of 2015 went from $548.2 million to $540.1 million. The decrease stems from the continued effects of the market transformation on the results of the printing division and the Media Sector. The loss of certain customers early in the fiscal year in the flyer printing operations was mitigated by previously announced new contracts, the progression of the in-store marketing product offering and an increase in revenues in the digital business. The existing flyer business remained relatively stable. The appreciation of the US dollar against the Canadian dollar and the acquisition of Ultra Flex Packaging, announced in October 2015, also had a favourable impact.

Adjusted operating earnings decreased 5.0%, from $92.4 million to $87.8 million in the fourth quarter of 2015. Excluding the exchange rate effect, the net effect of acquisitions, disposals and closures and the unfavourable impact of the stock-based compensation expense, adjusted operating earnings would have decreased by only $1.7 million, mainly as a result of cost structure reduction and optimization initiatives, which partially offset the decrease in revenues.

Adjusted net earnings applicable to participating shares decreased 4.7%, from $63.6 million, or $0.81 per share, to $60.6 million, or $0.78 per share. Excluding the unfavourable impact of the stock-based compensation expense, adjusted net earnings applicable to participating shares would have increased by $1.5 million as a result of the solid performance achieved by our operations. Net earnings applicable to participating shares increased from $9.0 million, or $0.12 per share, to $100.2 million, or $1.28 per share. This increase is mainly attributable to a favourable adjustment to deferred income tax assets in the United States, a reduction in the asset impairment charge and a decrease in restructuring and other costs (revenues).

Fiscal 2015 Results

In 2015, TC Transcontinental's revenues grew 0.6%, from $1,990.4 million to $2,002.2 million. Acquisitions, more specifically Capri Packaging and the Quebec weekly newspapers, mainly contributed to revenues. The signing of new agreements in several niches and the appreciation of the US dollar against the Canadian dollar also had a favourable impact. The increase in revenues was however mitigated by the impact of the market transformation on the results of the printing division and the Media Sector, the loss of certain customers early in the fiscal year, which affected the flyer printing and distribution operations, and the sale of certain assets.

Adjusted operating earnings increased by 9.3%, from $253.2 million in 2014 to $276.7 million in 2015. This increase is mainly attributable to the contribution from acquisitions, disposals and closures and the favourable exchange rate effect. Excluding the exchange rate effect, the net effect of acquisitions, disposals and closures and the unfavourable impact of the stock-based compensation expense, adjusted operating earnings would have increased by $5.1 million as a result of the solid performance achieved by our operations.

Adjusted net earnings applicable to participating shares increased 13.4%, from $164.7 million, or $2.11 per share, to $186.7 million, or $2.39 per share. Excluding the unfavourable impact of the stock-based compensation expense, adjusted net earnings applicable to participating shares would have increased by 16.8% due to the solid performance achieved by our operations. Net earnings applicable to participating shares increased from $105.1 million, or $1.35 per share, to $262.6 million, or $3.36 per share. This increase stems mainly from the growth in adjusted operating earnings, a favourable adjustment to deferred income taxes in the United States, a decrease in restructuring and other costs (revenues), a gain on the sale of the consumer magazine publishing activities and a reduction in the asset impairment charge.

For more detailed financial information, please see Management's Discussion and Analysis for the fiscal year ended October 31st, 2015 as well as the financial statements in the "Investors" section of our website at www.tc.tc

Subsequent Events

Conclusion of an agreement in principle with The Globe and Mail Inc.

On December 7, 2015, the Corporation concluded an agreement in principle with The Globe and Mail Inc. relating to the printing of The Globe and Mail newspaper. The Corporation will receive shortly a single payment of $31.0 million to compensate for price reductions on future services for the remainder of the contract. The amount received will be recorded as deferred revenues and recognized in revenues over the next years.

Change in Senior Management

Ted Markle, President of TC Media, will leave the Corporation on December, 31st 2015. Mr. Markle has made this decision after a personal reflection where he plans to embark on a new stage in his career and take on new professional challenges. We have developed seasoned leaders who have the experience and competencies to take on additional responsibilities as a result of this departure. The Corporation wishes to thank Mr. Markle for his many contributions over the years.

Outlook 2016

During fiscal 2015, with the exception of the loss of certain customers, our flyer printing volume remained stable, and we expect this trend to continue in fiscal 2016. In addition, we will continue to develop our point-of-purchase marketing product offering for retailers, and the non- recurring printing contract for the Canadian census will also have a positive impact. However, we are expecting a decrease in newspaper printing volume as a result of the digital shift made by certain publishers; on the other hand, we will be pursuing our efforts to integrate new publishers. Lastly, we will continue with our optimization initiatives to offset the effect of the transformation of the printing industry.

We will continue executing our diversification strategy into flexible packaging. Within our existing operations, we will complete the integration of Ultra Flex Packaging to realize certain synergies and to benefit from a national sales force that will help us grow our revenues. Lastly, we will maintain our disciplined acquisition approach in this promising market in order to invest in quality assets that meet our strategic criteria.

Within the Media Sector, we will continue growing our strategic and profitable digital products, while adapting our cost structure in order to mitigate the effect of the difficult advertising market conditions that will persist.

Our significant cash flows and our excellent financial health should permit us to continue our transformation, as part of which we expect to continue incurring approximately $75 million in capital expenditures during fiscal 2016. Finally, we will continue to build the foundations of our Packaging Division while maximizing our printing operations and strengthening our Media Sector.

Reconciliation of Non-IFRS Financial Measures

Financial data have 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 more appropriate for evaluating the Corporation's operating performance. Internally, management uses such non-IFRS 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 IFRS.

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

Three months ended October 31 For fiscal years ended October 31
(in millions of dollars, except per share amounts) 2015 2014 2015 2014
Net earnings applicable to participating shares $ 100.2 $ 9.0 $ 262.6 $ 105.1
Dividends on preferred shares, net of related taxes - 1.7 - 6.8
Non-controlling interests (0.1 ) 0.5 (0.4 ) 0.6
Net earnings from discontinued operations 3.6 (2.7 ) (25.6 ) (1.5 )
Income taxes (34.2 ) 12.2 15.6 38.5
Share of earnings in interests in joint ventures, net of related taxes - (0.1 ) (0.3 ) (0.7 )
Net financial expenses (7.6 ) 5.3 6.2 19.6
Impairment of assets 25.6 45.1 27.2 45.8
Restructuring and other costs (revenues) 0.3 21.4 (8.6 ) 39.0
Adjusted operating earnings $ 87.8 $ 92.4 $ 276.7 $ 253.2
Depreciation and amortization 26.5 26.7 102.0 100.9
Adjusted operating earnings before depreciation and amortization $ 114.3 $ 119.1 $ 378.7 $ 354.1
Net earnings applicable to participating shares $ 100.2 $ 9.0 $ 262.6 $ 105.1
Adjustment to deferred income tax assets (51.7 ) - (51.7 ) (10.0 )
Reversal of financial expenses resulting from notices of assessment (11.9 ) - (11.9 ) -
Net earnings from discontinued operations 3.6 (2.7 ) (25.6 ) (1.5 )
Impairment of assets (after tax) 20.8 41.2 22.0 41.7
Restructuring and other costs (revenues) (after tax) (0.4 ) 16.1 (8.7 ) 29.4
Adjusted net earnings applicable to participating shares $ 60.6 $ 63.6 $ 186.7 $ 164.7
Weighted average number of participating shares outstanding 78.1 78.0 78.1 78.0
Adjusted net earnings applicable to participating shares per share $ 0.78 $ 0.81 $ 2.39 $ 2.11
As at
October 31,
As at
October 31,
2015 2014
Long-term debt $ 347.7 $ 358.7
Current portion of long-term debt 36.4 118.1
Cash (38.6 ) (35.2 )
Net indebtedness $ 345.5 $ 441.6
Adjusted operating earnings before depreciation and amortization (last 12 months) $ 378.7 $ 354.1
Net indebtedness ratio 0.9 x 1.2 x

Dividend on Participating Shares

The Corporation's Board of Directors declared a quarterly dividend of $0.17 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on January 20, 2016 to shareholders of record at the close of business on January 4, 2016.

Conference Call

Upon releasing its fiscal 2015 results, the Corporation will hold a conference call for the financial community today at 9:30 a.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, Corporate Communications of TC Transcontinental, at 514-954-3581.

Profile

Canada's largest printer, with operations in print and digital media, flexible packaging and publishing, 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 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 and in the latest Annual Information Form.

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 December 7, 2015.

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 December 7, 2015. 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
Years ended October 31, 2015 and 2014
(in millions of Canadian dollars, except per share data)
2015 2014
Revenues $ 2,002.2 $ 1,990.4
Operating expenses 1,623.5 1,636.3
Restructuring and other costs (revenues) (8.6 ) 39.0
Impairment of assets 27.2 45.8
Operating earnings before depreciation and amortization 360.1 269.3
Depreciation and amortization 102.0 100.9
Operating earnings 258.1 168.4
Net financial expenses 6.2 19.6
Earnings before share of net earnings in interests in joint ventures and income taxes 251.9 148.8
Share of net earnings in interests in joint ventures, net of related taxes 0.3 0.7
Income taxes 15.6 38.5
Net earnings from continuing operations 236.6 111.0
Net earnings from discontinued operations 25.6 1.5
Net earnings 262.2 112.5
Non-controlling interests (0.4 ) 0.6
Net earnings attributable to shareholders of the Corporation 262.6 111.9
Dividends on preferred shares, net of related taxes - 6.8
Net earnings attributable to participating shares $ 262.6 $ 105.1
Net earnings per participating share - basic
Continuing operations $ 3.03 $ 1.34
Discontinued operations 0.33 0.01
$ 3.36 $ 1.35
Net earnings per participating share - diluted
Continuing operations $ 3.02 $ 1.33
Discontinued operations 0.33 0.01
$ 3.35 $ 1.34
Weighted average number of participating shares outstanding - basic (in millions) 78.1 78.0
Weighted average number of participating shares - diluted (in millions) 78.3 78.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended October 31, 2015 and 2014
(in millions of Canadian dollars)
2015 2014
Net earnings $ 262.2 $ 112.5
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 (6.4 ) (2.3 )
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
1.6

2.8
Related income taxes (1.1 ) 0.1
(3.7 ) 0.4
Cumulative translation differences
Net unrealized exchange gains on the translation of the financial statements of foreign operations 22.6 5.7
Unrealized exchange losses on the translation of a debt designated as a hedge of a net investment in foreign operations
-

(2.4
)
22.6 3.3
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 (9.1 ) 22.7
Related income taxes (2.5 ) 6.1
(6.6 ) 16.6
Other comprehensive income (1) 12.3 20.3
Comprehensive income $ 274.5 $ 132.8
Attributable to:
Shareholders of the Corporation $ 274.9 $ 132.2
Non-controlling interests (0.4 ) 0.6
$ 274.5 $ 132.8
(1) Other comprehensive income is attributable to continuing operations.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years ended October 31, 2015 and 2014
(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, 2014 $ 366.0 $ 3.4 $ 415.6 $ 7.1 $ 792.1 $ 1.0 $ 793.1
Net earnings - - 262.6 - 262.6 (0.4 ) 262.2
Other comprehensive income - - - 12.3 12.3 - 12.3
Shareholders' contributions and distributions to shareholders
Participating share redemptions (0.3 ) - (0.4 ) - (0.7 ) - (0.7 )
Exercise of stock options 2.5 (0.4 ) - - 2.1 - 2.1
Dividends - - (52.3 ) - (52.3 ) - (52.3 )
Stock-option based compensation - 0.2 - - 0.2 - 0.2
Business disposal - - - - - (0.6 ) (0.6 )
Balance as at October 31, 2015 $ 368.2 $ 3.2 $ 625.5 $ 19.4 $ 1,016.3 $ - $ 1,016.3
Balance as at October 31, 2013 $ 462.8 $ 2.9 $ 362.5 $ (13.2 ) $ 815.0 $ 0.4 $ 815.4
Net earnings - - 111.9 - 111.9 0.6 112.5
Other comprehensive income - - - 20.3 20.3 - 20.3
Shareholders' contributions and distributions to shareholders
Preferred share redemptions (96.8 ) - (3.2 ) - (100.0 ) - (100.0 )
Dividends - - (55.6 ) - (55.6 ) - (55.6 )
Stock-option based compensation - 0.5 - - 0.5 - 0.5
Balance as at October 31, 2014 $ 366.0 $ 3.4 $ 415.6 $ 7.1 $ 792.1 $ 1.0 $ 793.1
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Years ended October 31, 2015 and 2014
(in millions of Canadian dollars)
As at As at
October 31, October 31,
2015 2014
Current assets
Cash $ 38.6 $ 35.2
Accounts receivable 393.0 415.1
Income taxes receivable 15.2 15.2
Inventories 116.3 94.2
Prepaid expenses and other current assets 16.2 14.7
579.3 574.4
Property, plant and equipment 567.5 565.9
Intangible assets 257.5 252.9
Goodwill 459.5 419.5
Investments in joint ventures 2.5 1.7
Deferred taxes 197.1 152.2
Other assets 50.1 61.1
$ 2,113.5 $ 2,027.7
Current liabilities
Accounts payable and accrued liabilities $ 339.7 $ 301.8
Provisions 10.2 20.0
Income taxes payable 20.7 30.8
Deferred revenues and deposits 51.4 61.4
Current portion of long-term debt 36.4 118.1
458.4 532.1
Long-term debt 347.7 358.7
Deferred taxes 79.9 84.7
Provisions 5.7 30.3
Other liabilities 205.5 228.8
1,097.2 1,234.6
Equity
Share capital 368.2 366.0
Contributed surplus 3.2 3.4
Retained earnings 625.5 415.6
Accumulated other comprehensive income 19.4 7.1
Attributable to shareholders of the Corporation 1,016.3 792.1
Non-controlling interests - 1.0
1,016.3 793.1
$ 2,113.5 $ 2,027.7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended October 31, 2015 and 2014
(in millions of Canadian dollars)
2015 2014
Operating activities
Net earnings $ 262.2 $ 112.5
Less: Net earnings from discontinued operations 25.6 1.5
Net earnings from continuing operations 236.6 111.0
Adjustments to reconcile net earnings from continuing operations and cash flows from operating activities:
Depreciation and amortization 128.8 128.5
Impairment of assets 27.2 45.8
Reversal of the provision for multi-employer pension plans (22.6 ) -
Financial expenses on long-term debt 19.2 19.8
Reversal of interest on previous tax reassessments (11.9 ) -
Net losses (gains) on disposal of assets (6.7 ) 0.2
Income taxes 15.6 38.5
Stock-option based compensation 0.2 0.5
Other (7.6 ) (0.1 )
Cash flows generated by operating activities before changes in non-cash operating items and income taxes paid 378.8 344.2
Changes in non-cash operating items (27.3 ) (4.2 )
Income taxes paid (62.9 ) (3.5 )
Cash flows from continuing operating activities 288.6 336.5
Investing activities
Business combinations, net of acquired cash (100.4 ) (225.9 )
Business disposals 2.2 2.3
Acquisitions of property, plant and equipment (64.4 ) (35.1 )
Disposals of property, plant and equipment 21.6 2.2
Increase in intangible assets (22.5 ) (25.8 )
Cash flows from investments in continuing operations (163.5 ) (282.3 )
Financing activities
Increase in long-term debt - 250.0
Reimbursement of long-term debt (77.2 ) (33.3 )
Net decrease in credit facility (31.1 ) (89.0 )
Financial expenses on long-term debt (19.3 ) (13.6 )
Issuance costs on long-term debt - (1.8 )
Bond forward contract - (1.5 )
Dividends on participating shares (52.3 ) (48.8 )
Dividends on preferred shares - (6.8 )
Exercise of stock options 2.1 -
Participating share redemptions (0.7 ) -
Preferred share redemptions - (100.0 )
Cash flows from the financing of continuing operations (178.5 ) (44.8 )
Effect of exchange rate changes on cash denominated in foreign currencies 4.1 1.8
Net change in cash from continuing operations (49.3 ) 11.2
Net change in cash from discontinued operations 52.7 (2.4 )
Cash at beginning of year 35.2 26.4
Cash at end of year $ 38.6 $ 35.2
Non-cash investing activities
Net change in capital asset acquisitions financed by accounts payable $ (0.8 ) $ 0.6

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