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

Transcontinental Inc.

June 11, 2015 11:34 ET

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

Highlights

- Revenues increased 2.7%.

- Adjusted net earnings applicable to participating shares grew 13.7%.

- Maintained a solid financial position, with a net indebtedness ratio of 1.0x.

- Completed the sale of consumer magazines produced in Montreal and Toronto for $55.5 million.

- TC Transcontinental again ranked by Corporate Knights as one of the Best 50 Corporate Citizens in Canada.

MONTREAL, QUEBEC--(Marketwired - June 11, 2015) - Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B) announces its results for the second quarter of Fiscal 2015, which ended April 30, 2015.

"The increase in our revenues and profitability in the second quarter was once again supported by our strategic decisions," said François Olivier, President and Chief Executive Officer of TC Transcontinental. "The diversification of our operations into flexible packaging, the consolidation of the weekly newspaper market in Quebec and our efforts to optimize our cost structure were all factors that contributed to the growth of our results in an advertising market in transformation."

"We keep generating significant cash flows that will allow us to continue investing in our flexible packaging division and the development of our digital offering to our various customers, in particular local advertisers and retailers."

(in millions of dollars, except per share data) Q2-2015 Q2-2014 % YTD 2015 YTD 2014 %
Revenues 490.5 477.5 2.7 980.2 959.2 2.2
Adjusted operating earnings before depreciation and amortization (Adjusted EBITDA) 87.2 79.3 10.0 168.0 151.1 11.2
Adjusted operating earnings (Adjusted EBIT) 61.6 55.5 11.0 117.3 102.8 14.1
Adjusted net earnings applicable to participating shares 39.1 34.4 13.7 77.3 63.7 21.4
Per share 0.50 0.44 13.6 0.99 0.82 20.7
Net earnings applicable to participating shares 81.2 34.7 - 119.1 51.9 -
Per share 1.04 0.45 - 1.53 0.67 -
Please refer to the table "Reconciliation of Non-IFRS financial measures" in this press release.
Financial data, excluding net earnings applicable to participating shares, have been restated to exclude earnings from discontinued operations.

2015 Second Quarter Results

Revenues for the second quarter of 2015 increased 2.7%, from $477.5 million to $490.5 million. This increase is mainly attributable to the contribution from acquisitions, more specifically the acquisition of Capri Packaging and the Quebec weekly newspapers (net of disposals and closures). The appreciation of the US dollar against the Canadian dollar also had a favourable impact. This increase in revenues was however mitigated mainly by a decrease in flyer printing volumes as a result of the loss of an American customer and the consolidation of two brands by a customer in Canada. In addition, the transformation of the advertising market continues to impact the results of most of the Corporation's other niches.

Adjusted operating earnings went from $55.5 million to $61.6 million in the second quarter of 2015, an increase of 11.0%. This performance is attributable to the effect of acquisitions, disposals and closures, the optimization of the cost structure across the Corporation and the favourable impact of the exchange rate. It was however mitigated by the above-mentioned factors and the impact of the variation in the stock price on the stock-based compensation.

Adjusted net earnings applicable to participating shares grew 13.7%, from $34.4 million, or $0.44 per share, to $39.1 million, or $0.50 per share. Net earnings applicable to participating shares more than doubled, from $34.7 million, or $0.45 per share, to $81.2 million, or $1.04 per share. This improvement results mainly from the gain on the sale of consumer magazines produced in Montreal and Toronto, the reversal of the provision related to multi-employer pension plans and the increase in operating earnings.

Other Highlights

  • On March 4, 2015, Transcontinental Capri received Safe Quality Food (SQF) Level 3 certification, an audit standard compliant with Global Food Safety Initiative requirements, established by the Safe Quality Food Institute.

  • On March 17, 2015, TC Transcontinental announced the appointment of Mario Plourde, President and Chief Executive Officer of Cascades Inc., to the Corporation's Board of Directors.

  • On April 10, 2015, the Corporation announced the renewal of its normal course issuer bid, between April 15, 2015 and April 14, 2016.

  • On April 22, 2015, TC Transcontinental Packaging takes three prizes at the PAC (Packaging Consortium) Global Leadership Awards.

  • On May 15, 2015, TC Media acquired the Atouts series from Septembre éditeur inc. This series has long had an excellent reputation in childcare centres (CPEs), pre-schools and elementary schools in Quebec, in addition to being well-known and used all across Canada.

Highlights of the First Half

For the first half of 2015, TC Transcontinental's revenues increased 2.2%, from $959.2 million to $980.2 million. This increase stems primarily from the contribution of acquisitions, more specifically the acquisition of Capri Packaging and the Quebec weekly newspapers (net of disposals and closures). The appreciation of the US dollar against the Canadian dollar also had a favourable impact. This increase in revenues was however mitigated mainly by a decrease in flyer printing volumes as a result of the loss of an American customer and the consolidation of two brands by a customer in Canada. In addition, the transformation of the advertising market continues to impact the results of most of the Corporation's other niches.

Adjusted operating earnings went from $102.8 million to $117.3 million, an increase of 14.1%. This increase is attributable to the contribution from acquisitions, disposals and closures, the optimization of the cost structure across the Corporation and the favourable impact of the exchange rate. It was however mitigated by the above-mentioned factors and the impact of the variation in the stock price on the stock- based compensation.

Adjusted net earnings applicable to participating shares grew 21.4%, from $63.7 million, or $0.82 per share, to $77.3 million, or $0.99 per share. Net earnings applicable to participating shares increased from $51.9 million, or $0.67 per share, to $119.1 million, or $1.53 per share. This improvement results mainly from the gain on the sale of consumer magazines produced in Montreal and Toronto, the reversal of the provision related to multi-employer pension plans and the increase in operating earnings.

For more detailed financial information, please see Management's Discussion and Analysis for the second quarter ended April 30th, 2015 as well as the financial statements in the "Investors" section of our website at www.tc.tc

Outlook

We will continue to benefit from the savings realized as a result of the consolidation of our printing plants and the operational efficiencies that we are continuing to implement in order to maximize the profitability of the Printing & Packaging Sector. The impact of new printing agreements announced in 2014 and the development of our point-of-purchase marketing services will also have a positive effect on our results. However, these items should be offset by the transformation of the advertising market, which affects most of our printing niches, the loss of an American customer and the consolidation of two brands by one of our customers in Canada.

The integration of the Quebec weekly newspapers continues to progress and the evolution of our digital platforms is moving forward as anticipated. However, these catalysts are expected to be partially offset by the transformation of the advertising market, which will continue to impact our weekly newspaper publishing activities during fiscal 2015. The Corporation will also be affected by the exit from the Canadian market of a retailer, which will have an impact on our distribution activities. Despite these challenges, we will continue to limit the impact on our profit margin by adjusting our cost structure so that it reflects the realities of the industry. 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 investing in our growth. After the first year, the results from our acquisition of Capri Packaging continue to meet our expectations, and we are taking steps to develop our existing operations. However, due to the long sales cycle in this niche, the results of our flexible packaging operations should be stable in the second half compared to last year. In addition, we will maintain our disciplined acquisition approach in this promising market to ensure a sustained long-term growth for the Corporation.

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 April 30 Six months ended April 30
(in millions of dollars, except per share amounts) 2015 2014 2015 2014
Net earnings applicable to participating shares $ 81.2 $ 34.7 $ 119.1 $ 51.9
Dividends on preferred shares, net of related taxes - 1.7 - 3.4
Non-controlling interests (0.2 ) 0.4 (0.4 ) 0.1
Net earnings from discontinued operations (30.7 ) (2.2 ) (28.5 ) 1.2
Income taxes 20.4 14.2 32.8 24.1
Share of net earnings in interests in joint ventures, net of related taxes (0.1 ) (0.1 ) (0.2 ) (0.4 )
Net financial expenses 6.3 4.0 10.2 8.6
Impairment of assets 1.4 0.1 1.4 0.5
Restructuring and other costs (revenues) (16.7 ) 2.7 (17.1 ) 13.4
Adjusted operating earnings $ 61.6 $ 55.5 $ 117.3 $ 102.8
Depreciation and amortization 25.6 23.8 50.7 48.3
Adjusted operating earnings before depreciation and amortization $ 87.2 $ 79.3 $ 168.0 $ 151.1
Net earnings applicable to participating shares $ 81.2 $ 34.7 $ 119.1 $ 51.9
Net earnings from discontinued operations (30.7 ) (2.2 ) (28.5 ) 1.2
Impairment of assets (after tax) 1.0 0.1 1.0 0.4
Restructuring and other costs (revenues) (after tax) (12.4 ) 1.8 (14.3 ) 10.2
Adjusted net earnings applicable to participating shares $ 39.1 $ 34.4 $ 77.3 $ 63.7
Weighted average number of participating shares outstanding 78.1 78.0 78.1 78.0
Adjusted net earnings applicable to participating shares per share $ 0.50 $ 0.44 $ 0.99 $ 0.82
As at As at
April 30, October 31,
2015 2014
Long-term debt $ 347.4 $ 358.7
Current portion of long-term debt 72.8 118.1
Cash (35.4 ) (35.2 )
Net indebtedness $ 384.8 $ 441.6
Adjusted operating earnings before depreciation and amortization (last 12 months) $ 371.0 $ 354.1
Net indebtedness ratio 1.0 x 1.2 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 July 22, 2015 to shareholders of record at the close of business on July 6, 2015.

Additional Information

Conference Call

Upon releasing its second quarter 2015 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, 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$2.1 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 second quarter ended April 30th, 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 June 11, 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 June 11, 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 Six months ended
April 30 April 30
(in millions of Canadian dollars, except per share data) 2015 2014 2015 2014
Revenues $ 490.5 $ 477.5 $ 980.2 $ 959.2
Operating expenses 403.3 398.2 812.2 808.1
Restructuring and other costs (revenues) (16.7 ) 2.7 (17.1 ) 13.4
Impairment of assets 1.4 0.1 1.4 0.5
Operating earnings before depreciation and amortization 102.5 76.5 183.7 137.2
Depreciation and amortization 25.6 23.8 50.7 48.3
Operating earnings 76.9 52.7 133.0 88.9
Net financial expenses 6.3 4.0 10.2 8.6
Earnings before share of net earnings in interests in joint ventures and income taxes 70.6 48.7 122.8 80.3
Share of net earnings in interests in joint ventures, net of related taxes 0.1 0.1 0.2 0.4
Income taxes 20.4 14.2 32.8 24.1
Net earnings from continuing operations 50.3 34.6 90.2 56.6
Net earnings from discontinued operations 30.7 2.2 28.5 (1.2 )
Net earnings 81.0 36.8 118.7 55.4
Non-controlling interests (0.2 ) 0.4 (0.4 ) 0.1
Net earnings attributable to shareholders of the Corporation 81.2 36.4 119.1 55.3
Dividends on preferred shares, net of related taxes - 1.7 - 3.4
Net earnings attributable to participating shares $ 81.2 $ 34.7 $ 119.1 $ 51.9
Net earnings per participating share - basic
Continuing operations $ 0.64 $ 0.42 $ 1.15 $ 0.68
Discontinued operations 0.40 0.03 0.38 (0.01 )
$ 1.04 $ 0.45 $ 1.53 $ 0.67
Net earnings per participating share - diluted
Continuing operations $ 0.64 $ 0.42 $ 1.15 $ 0.68
Discontinued operations 0.40 0.02 0.37 (0.02 )
$ 1.04 $ 0.44 $ 1.52 $ 0.66
Weighted average number of participating shares outstanding - basic (in millions) 78.1 78.0 78.1 78.0
Weighted average number of participating shares - diluted (in millions) 78.3 78.2 78.3 78.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
Three months ended Six months ended
April 30 April 30
(in millions of Canadian dollars) 2015 2014 2015 2014
Net earnings $ 81.0 $ 36.8 $ 118.7 $ 55.4
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 6.4 0.8 (2.7 ) 0.2
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 1.0 0.8 1.5 -
Related income taxes 2.0 0.3 (0.3 ) 0.1
5.4 1.3 (0.9 ) 0.1
Cumulative translation differences
Net unrealized exchange gains (losses) on the translation of the financial statements of foreign operations (8.4 ) (0.1 ) 10.6 2.8
Unrealized exchange gains (losses) on the translation of a debt designated as a hedge of a net investment in foreign operations - 0.1 - (2.4 )
(8.4 ) - 10.6 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 (6.9 ) 17.2 0.6 11.2
Related income taxes (1.8 ) 4.6 0.2 3.0
(5.1 ) 12.6 0.4 8.2
Other comprehensive income (loss) (1) (8.1 ) 13.9 10.1 8.7
Comprehensive income $ 72.9 $ 50.7 $ 128.8 $ 64.1
Attributable to:
Shareholders of the Corporation $ 73.1 $ 50.3 $ 129.2 $ 64.0
Non-controlling interests (0.2 ) 0.4 (0.4 ) 0.1
$ 72.9 $ 50.7 $ 128.8 $ 64.1
(1) Other comprehensive income (loss) 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 (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 - - 119.1 - 119.1 (0.4 ) 118.7
Other comprehensive income - - - 10.1 10.1 - 10.1
Shareholders' contributions and distributions to shareholders
Exercise of stock options 0.8 (0.1 ) - - 0.7 - 0.7
Dividends - - (25.8 ) - (25.8 ) - (25.8 )
Stock-option based compensation - 0.1 - - 0.1 - 0.1
Business disposal - - - - - (0.6 ) (0.6 )
Balance as at April 30, 2015 $ 366.8 $ 3.4 $ 508.9 $ 17.2 $ 896.3 $ - $ 896.3
Balance as at October 31, 2013 $ 462.8 $ 2.9 $ 362.5 $ (13.2 ) $ 815.0 $ 0.4 $ 815.4
Net earnings - - 55.3 - 55.3 0.1 55.4
Other comprehensive income - - - 8.7 8.7 - 8.7
Shareholders' contributions and distributions to shareholders
Dividends - - (27.2 ) - (27.2 ) - (27.2 )
Stock-option based compensation - 0.3 - - 0.3 - 0.3
Balance as at April 30, 2014 $ 462.8 $ 3.2 $ 390.6 $ (4.5 ) $ 852.1 $ 0.5 $ 852.6
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited
(in millions of Canadian dollars) As at As at
April 30, October 31,
2015 2014
Current assets
Cash $ 35.4 $ 35.2
Accounts receivable 356.5 415.1
Income taxes receivable 12.9 15.2
Inventories 96.3 94.2
Prepaid expenses and other current assets 16.6 14.7
Property, plant and equipment held for sale 15.8 -
533.5 574.4
Property, plant and equipment 545.2 565.9
Intangible assets 247.8 252.9
Goodwill 403.9 419.5
Investments in joint ventures 2.4 1.7
Deferred taxes 155.2 152.2
Other assets 69.3 61.1
$ 1,957.3 $ 2,027.7
Current liabilities
Accounts payable and accrued liabilities $ 259.8 $ 301.8
Provisions 12.7 20.0
Income taxes payable 9.7 30.8
Deferred revenues and deposits 46.8 61.4
Current portion of long-term debt 72.8 118.1
401.8 532.1
Long-term debt 347.4 358.7
Deferred taxes 86.6 84.7
Provisions 7.8 30.3
Other liabilities 217.4 228.8
1,061.0 1,234.6
Equity
Share capital 366.8 366.0
Contributed surplus 3.4 3.4
Retained earnings 508.9 415.6
Accumulated other comprehensive income 17.2 7.1
Attributable to shareholders of the Corporation 896.3 792.1
Non-controlling interests - 1.0
896.3 793.1
$ 1,957.3 $ 2,027.7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three months ended Six months ended
April 30 April 30
(in millions of Canadian dollars) 2015 2014 2015 2014
Operating activities
Net earnings $ 81.0 $ 36.8 $ 118.7 $ 55.4
Less: Net earnings from discontinued operations 30.7 2.2 28.5 (1.2 )
Net earnings from continuing operations 50.3 34.6 90.2 56.6
Adjustments to reconcile net earnings from continuing operations and cash flows from operating activities:
Depreciation and amortization 32.3 30.9 63.8 62.3
Impairment of assets 1.4 0.1 1.4 0.5
Financial expenses on long-term debt 4.9 3.8 10.5 8.4
Net losses (gains) on disposal of assets 0.2 0.2 (6.7 ) 0.1
Income taxes 20.4 14.2 32.8 24.1
Stock-option based compensation - 0.1 0.1 0.3
Other 2.7 (0.6 ) (1.1 ) 0.6
Cash flows generated by operating activities before changes in non-cash operating items and income taxes paid 112.2 83.3 191.0 152.9
Changes in non-cash operating items (52.2 ) (18.8 ) (65.3 ) (22.1 )
Income taxes paid (6.2 ) (3.9 ) (47.0 ) (1.1 )
Cash flows from continuing operations 53.8 60.6 78.7 129.7
Investing activities
Business combination - - - (1.0 )
Business dispositions 0.9 1.5 1.2 1.5
Acquisitions of property, plant and equipment (16.6 ) (9.8 ) (29.6 ) (18.6 )
Disposals of property, plant and equipment 4.3 0.1 4.5 0.8
Increase in intangible assets (5.9 ) (4.9 ) (11.4 ) (11.1 )
Cash flows from investments in continuing operations (17.3 ) (13.1 ) (35.3 ) (28.4 )
Financing activities
Reimbursement of long-term debt (0.1 ) (16.9 ) (65.1 ) (25.5 )
Net decrease in credit facility (59.5 ) (18.0 ) (0.3 ) (46.0 )
Financial expenses on long-term debt (3.2 ) (4.5 ) (11.0 ) (8.0 )
Issuance of participating shares - - 0.7 -
Dividends on participating shares (13.3 ) (12.5 ) (25.8 ) (23.8 )
Dividends on preferred shares - (1.7 ) - (3.4 )
Cash flows from the financing of continuing operations (76.1 ) (53.6 ) (101.5 ) (106.7 )
Effect of exchange rate changes on cash denominated in foreign currencies (1.3 ) 0.1 2.1 1.1
Net change in cash from continuing operations (40.9 ) (6.0 ) (56.0 ) (4.3 )
Net change in cash from discontinued operations 51.9 7.0 56.2 7.8
Cash at beginning of period 24.4 28.9 35.2 26.4
Cash at end of period $ 35.4 $ 29.9 $ 35.4 $ 29.9
Non-cash investing and financing activities
Net change in capital asset acquisitions financed by accounts payable $ 1.3 $ 1.4 $ 0.7 $ -

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