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

Transcontinental Inc.

March 17, 2015 06:00 ET

Transcontinental Inc. Announces its Results for the First Quarter of Fiscal 2015

MONTREAL, QUEBEC--(Marketwired - March 17, 2015) - (TSX:TCL.A)(TSX:TCL.B)

Highlights

  • Revenues increased 1.1%.
  • Adjusted net earnings applicable to participating shares grew 36.7%.
  • Increased the dividend per participating share by 6%, to $0.68 per year.
  • Maintained a solid financial position, with a net indebtedness ratio of 1.24x.
  • Announced the sale of consumer magazines produced in Montreal and Toronto to TVA Group Inc. for $55.5 million. The Competition Bureau issued a No Action letter, which clears this transaction. The sale is expected to close in April 2015.

Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B) announces its results for the first quarter of Fiscal 2015, which ended January 31, 2015.

Message from the President and Chief Executive Officer

"With the results for the first quarter of Fiscal 2015, namely the 1.1% growth in consolidated revenues and the 36.7% increase in our profitability, the year is off to a good start," said François Olivier, President and Chief Executive Officer of TC Transcontinental. "Our strategy aimed at consolidating the weekly newspaper market in Quebec and diversifying into flexible packaging has been fruitful. The integration of Transcontinental Capri was successfully completed, and this asset is performing as expected. Despite lower advertising revenues, our various initiatives allowed us to be profitable and to keep generating significant cash flows. We maintain an excellent financial position, which permits us, once again this year, to increase the dividend per participating share."

"In the coming quarters, we intend to continue growing our flexible packaging business, optimizing our operating activities as well as investing in our digital offering," concluded François Olivier.

(in millions of dollars, except per share data) Q1-15 Q1-14 %
Revenues 504.6 499.3 1.1
Adjusted operating earnings before amortization (Adjusted EBITDA) 78.5 68.6 14.4
Adjusted operating earnings (Adjusted EBIT) 52.9 43.5 21.6
Adjusted net earnings applicable to participating shares 36.1 26.4 36.7
Per share 0.46 0.34 35.3
Net earnings applicable to participating shares 37.9 17.2 -
Per share 0.49 0.22 -
Please refer to the table "Reconciliation of Non-IFRS financial measures" in this press release.

2015 First Quarter Results

Revenues for the first quarter of 2015 increased 1.1%, from $499.3 million to $504.6 million. This increase is mainly attributable to the contribution from acquisitions, more specifically the acquisition of Capri Packaging and the Quebec weekly newspapers from Sun Media Corporation. New printing and distribution agreements signed in 2014 also contributed to the increase in revenues. In addition, the appreciation of the US dollar against the Canadian dollar had a favourable impact. This growth in revenues was mitigated by disposals and closures, namely the sale of Rastar's assets, a reduction in marketing products printing activities, a transitional slowdown in flyer printing activities in the United States and, to a lesser extent, in Canada, and challenging market conditions for advertising spending.

In the first quarter of 2015, adjusted operating earnings rose 21.6%, from $43.5 million to $52.9 million. On the one hand, this performance is due to the contribution from acquisitions, disposals and closures as well as the favourable impact of the US dollar versus the Canadian dollar. On the other hand, this increase stems from the new printing and distribution agreements and the cost-reduction initiatives in the Media Sector. However, this growth was partly offset by the above-mentioned lower advertising revenues and the variation in the stock- based compensation expense.

Adjusted net earnings applicable to participating shares grew 36.7%, from $26.4 million to $36.1 million. On a per share basis, it increased from $0.34 to $0.46. Net earnings applicable to participating shares more than doubled, from $17.2 million, or $0.22 per share, to $37.9 million, or $0.49 per share. This improvement results mostly from the increase in operating earnings before amortization compared to the first quarter of 2014.

Other Highlights

  • On December 9, 2014, the Corporation extended its credit facility for two additional years, until February 2020.
  • On March 17, 2015, the Corporation released its sixth annual Sustainability Report titled "Guide. Mobilize. Achieve." This edition outlines the Corporation's progress with respect to its three-year plan (2013-2015) based on three pillars: the environment, employees and communities. To learn more about the commitments and achievements of TC Transcontinental with respect to corporate social responsibility, refer to the 2014 report, which is on the Corporation's website at www.tc.tc/socialresponsibility.

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

Outlook

We will continue our efforts to maximize the profitability of our printing platform in fiscal 2015. The impact of the new agreements to print newspapers and magazines, announced in 2014, should keep contributing to our operating earnings, and we will maintain our efforts to attract other Canadian newspaper publishers to our highly efficient print network. We will also continue developing solutions to meet the evolving needs of retailers, in particular with respect to our point-of-purchase marketing services. However, a decline in advertising spending should continue to impact our printing operations.

The challenging conditions with respect to advertising revenues should continue to impact our weekly newspaper publishing activities as well as our interactive marketing solutions during fiscal 2015. However, these items should be offset by our synergies related to our two recent transactions within the Media sector. Lastly, we will continue to invest in the development of our digital and interactive marketing products as well as enhance our business and education offerings.

We will continue to generate significant cash flows in the next quarters, and our excellent financial position should permit us to continue applying our multi-pronged capital management approach, which allows us to invest in our growth while increasing our dividends and reducing our debt. The results from our acquisition of Capri Packaging continue to meet our expectations, and we will maintain a disciplined approach to growth opportunities in this niche.

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.

Reconciliation of Non-IFRS financial measures
(unaudited)
Three months ended January 31
(in millions of dollars, except per share data) 2015 2014
Net earnings applicable to participating shares $ 37.9 $ 17.2
Dividends on preferred shares, net of related taxes - 1.7
Non-controlling interests (0.2 ) (0.3 )
Income taxes 11.6 8.7
Share of net earnings in interests in joint ventures, net of related taxes (0.1 ) (0.3 )
Net financial expenses 3.9 4.6
Impairment of assets - 0.4
Restructuring and other costs (revenues) (0.2 ) 11.5
Adjusted operating earnings $ 52.9 $ 43.5
Amortization 25.6 25.1
Adjusted operating earnings before amortization $ 78.5 $ 68.6
Net earnings applicable to participating shares $ 37.9 $ 17.2
Impairment of assets (after tax) - 0.3
Restructuring and other costs (revenues) (after tax) (1.8 ) 8.9
Adjusted net earnings applicable to participating shares $ 36.1 $ 26.4
Weighted average number of participating shares outstanding 78.0 78.0
Adjusted net earnings applicable to participating shares per share $ 0.46 $ 0.34
As at As at
January 31, October 31,
2015 2014
Long-term debt $ 359.9 $ 358.7
Current portion of long-term debt 123.0 118.1
Cash (24.4 ) (35.2 )
Net indebtedness $ 458.5 $ 441.6
Adjusted operating earnings before amortization (last 12 months) $ 370.3 $ 360.4
Net indebtedness ratio 1.24 x 1.23 x

Dividends

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 April 30, 2015 to shareholders of record at the close of business on April 10, 2015. The Corporation thus increased the dividend per participating share by 6%, or $0.04, raising the annual dividend from $0.64 to $0.68 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 2:30 p.m. at the Centre Mont-Royal, 2200 Mansfield Street, Montreal. For those who are unable to attend in person, the Corporation will webcast (audio only) the meeting and post it on it's website at www.tc.tc on March 18.

Conference Call

Upon releasing its first quarter 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, publishing and flexible packaging, 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 8,500 employees in Canada and the United States, and revenues of C$2.1 billion in 2014. 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, 2014, in the latest Annual Information Form and have been updated in the MD&A for the first quarter ended January 31st, 2015.

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 16, 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 March 16, 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
Unaudited
Three months ended
January 31
(in millions of Canadian dollars, except per share data) 2015 2014
Revenues $ 504.6 $ 499.3
Operating expenses 426.1 430.7
Restructuring and other costs (revenues) (0.2 ) 11.5
Impairment of assets - 0.4
Operating earnings before amortization 78.7 56.7
Amortization 25.6 25.1
Operating earnings 53.1 31.6
Net financial expenses 3.9 4.6
Earnings before share of net earnings in interests in joint ventures and income taxes 49.2 27.0
Share of net earnings in interests in joint ventures, net of related taxes 0.1 0.3
Income taxes 11.6 8.7
Net earnings 37.7 18.6
Non-controlling interests (0.2 ) (0.3 )
Net earnings attributable to shareholders of the Corporation 37.9 18.9
Dividends on preferred shares, net of related taxes - 1.7
Net earnings attributable to participating shares $ 37.9 $ 17.2
Net earnings per participating share - basic $ 0.49 $ 0.22
Net earnings per participating share - diluted $ 0.48 $ 0.22
Weighted average number of participating shares outstanding - basic (in millions) 78.0 78.0
Weighted average number of participating shares - diluted (in millions) 78.2 78.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
Three months ended
January 31
(in millions of Canadian dollars) 2015 2014
Net earnings $ 37.7 $ 18.6
Other comprehensive income (loss)
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 (9.1 ) (0.6 )
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 0.5 (0.8 )
Related income taxes (2.3 ) (0.2 )
(6.3 ) (1.2 )
Cumulative translation differences
Net unrealized exchange gains on the translation of the financial statements of foreign operations 19.0 2.9
Unrealized exchange losses on the translation of a debt designated as a hedge of a net investment in foreign operations - (2.5 )
19.0 0.4
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 7.5 (6.0 )
Related income taxes 2.0 (1.6 )
5.5 (4.4 )
Other comprehensive income (loss) 18.2 (5.2 )
Comprehensive income $ 55.9 $ 13.4
Attributable to:
Shareholders of the Corporation $ 56.1 $ 13.7
Non-controlling interests (0.2 ) (0.3 )
$ 55.9 $ 13.4
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 (loss)
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 - - 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
Balance as at October 31, 2013 $ 462.8 $ 2.9 $ 362.5 $ (13.2 ) $ 815.0 $ 0.4 $ 815.4
Net earnings - - 18.9 - 18.9 (0.3 ) 18.6
Other comprehensive loss - - - (5.2 ) (5.2 ) - (5.2 )
Shareholders' contributions and distributions to shareholders
Dividends - - (13.0 ) - (13.0 ) - (13.0 )
Stock-option based compensation - 0.2 - - 0.2 - 0.2
Balance as at January 31, 2014 $ 462.8 $ 3.1 $ 368.4 $ (18.4 ) $ 815.9 $ 0.1 $ 816.0
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited
(in millions of Canadian dollars) As at As at
January 31, October 31,
2015 2014
Current assets
Cash $ 24.4 $ 35.2
Accounts receivable 352.0 415.1
Income taxes receivable 15.8 15.2
Inventories 90.9 94.2
Prepaid expenses 17.4 14.7
500.5 574.4
Property, plant and equipment 573.8 565.9
Intangible assets 257.1 252.9
Goodwill 428.0 419.5
Investments in joint ventures 1.8 1.7
Deferred taxes 169.6 152.2
Other assets 76.9 61.1
$ 2,007.7 $ 2,027.7
Current liabilities
Accounts payable and accrued liabilities $ 243.8 $ 301.8
Provisions 16.8 20.0
Income taxes payable 1.8 30.8
Deferred revenues and deposits 65.2 61.4
Current portion of long-term debt 123.0 118.1
450.6 532.1
Long-term debt 359.9 358.7
Deferred taxes 87.3 84.7
Provisions 30.1 30.3
Other liabilities 242.5 228.8
1,170.4 1,234.6
Equity
Share capital 366.8 366.0
Contributed surplus 3.4 3.4
Retained earnings 441.0 415.6
Accumulated other comprehensive income 25.3 7.1
Attributable to shareholders of the Corporation 836.5 792.1
Non-controlling interests 0.8 1.0
837.3 793.1
$ 2,007.7 $ 2,027.7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three months ended
January 31
(in millions of Canadian dollars) 2015 2014
Operating activities
Net earnings $ 37.7 $ 18.6
Adjustments to reconcile net earnings and cash flows from operating activities:
Amortization 32.0 32.0
Impairment of assets - 0.4
Financial expenses on long-term debt 5.6 4.6
Net gains on disposal of assets (6.9 ) (0.1 )
Income taxes 11.6 8.7
Stock-option based compensation 0.1 0.2
Other (3.8 ) 1.2
Cash flows generated by operating activities before changes in non-cash operating items and income taxes recovered (paid) 76.3 65.6
Changes in non-cash operating items (5.8 ) 1.6
Income taxes recovered (paid) (40.9 ) 2.8
Cash flows from operating activities 29.6 70.0
Investing activities
Business combination - (1.0 )
Business dispositions 0.3 -
Acquisitions of property, plant and equipment (13.0 ) (8.8 )
Disposals of property, plant and equipment 0.2 0.7
Increase in intangible assets (5.9 ) (6.3 )
Cash flows from investing activities (18.4 ) (15.4 )
Financing activities
Reimbursement of long-term debt (65.0 ) (8.6 )
Net increase (decrease) in credit facility 59.2 (28.0 )
Financial expenses on long-term debt (7.8 ) (3.5 )
Issuance of participating shares 0.7 -
Dividends on participating shares (12.5 ) (11.3 )
Dividends on preferred shares - (1.7 )
Cash flows from financing activities (25.4 ) (53.1 )
Effect of exchange rate changes on cash denominated in foreign currencies 3.4 1.0
Net change in cash (10.8 ) 2.5
Cash at beginning of period 35.2 26.4
Cash at end of period $ 24.4 $ 28.9
Non-cash investing and financing activities
Net change in capital asset acquisitions financed by accounts payable $ (0.6 ) $ (1.4 )

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