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

Transcontinental Inc.

March 11, 2014 08:05 ET

Transcontinental Inc. Maintains its Profitability in the First Quarter and Increases its Dividend by 10%

MONTRÉAL, QUÉBEC--(Marketwired - March 11, 2014) - Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B)(TSX:TCL.PR.D)

(in millions of dollars, except per share data) Q1-14 Q1-13 (1) %
Revenues 499.3 525.6 (5.0 )
Adjusted operating earnings before amortization (Adjusted EBITDA) 68.6 69.4 (1.2 )
Adjusted operating earnings (Adjusted EBIT) 43.5 43.5 -
Adjusted net earnings applicable to participating shares 26.4 26.4 -
Per share 0.34 0.34 -
Net earnings applicable to participating shares 17.2 15.7 9.6
Per share 0.22 0.20 10.0
Please refer to the table "Reconciliation of Non-IFRS financial measures" in this press release.
(1) 2013 financial information has been restated to reflect the impact of the adoption of IFRS 11 "Joint Arrangements", amended IAS 19 "Employee benefits" and other elements.

Highlights

  • Revenues decreased 5.0%, primarily due to a particularly soft advertising market.
  • Net earnings applicable to participating shares grew 9.6%, from $15.7 million to $17.2 million. On a per share basis, they rose from $0.20 to $0.22.
  • Concluded a definitive agreement to acquire the assets of Capri Packaging, a division of Schreiber Foods, Inc., for US$133.0 million, subject to approval by U.S. regulators. The agreement includes a 10-year contract with Schreiber Foods, Inc., representing about 75% of the annual revenues of Capri (US$72 million), which will provide a recurring revenue stream. Please refer to the Capri Packaging press release and fact sheet on our website at www.tc.tc
  • Concluded a final agreement, subject to the approval of the Competition Bureau, to acquire all Quebec community newspapers and associated web properties from Sun Media Corporation, a subsidiary of Quebecor Media, for a total purchase price of $75 million, as well as an agreement with Quebecor Media for the printing of some of its magazines and direct marketing material.
  • Concluded an agreement with Gesca Ltd. amending the terms and conditions to print the La Presse newspaper.
  • Concluded new distribution agreements with several retailers.
  • Increased the dividend per participating share by 10%, to $0.64 per year.
  • Maintained a solid financial position, with a net indebtedness ratio of 0.85x.

Transcontinental Inc.'s (TSX:TCL.A)(TSX:TCL.B)(TSX:TCL.PR.D) revenues decreased by 5.0% in the first quarter of 2014, from $525.6 to $499.3 million, primarily due to the soft advertising market, which affected both our operating sectors. In the Printing Sector, the volume in our marketing products and magazine operations decreased. In the Media Sector, the soft advertising market continued to impact our local solutions, magazines and interactive marketing solutions.

Adjusted operating earnings remained stable at $43.5 million. This performance is primarily due to the optimization of our cost structure, especially in the Printing Sector; the positive impact of the Canadian dollar versus the U.S. dollar; and the share price variance in the first quarter of 2014 compared to 2013, which decreased the stock-based compensation expense. Net earnings applicable to participating shares increased, from $15.7 million, or $0.20 per share, to $17.2 million, or $0.22 per share. This improvement stems primarily from the significantly lower financial expenses, partially offset by higher income taxes compared to the first quarter of 2013. Adjusted net earnings applicable to participating shares remained stable at $26.4million, or $0.34 per share.

"We concluded a definitive agreement to acquire the assets of Capri Packaging, a company that specializes in printed flexible packaging. This is a strategic acquisition for TC Transcontinental's future in a new growth area," said François Olivier, President and Chief Executive Officer. "This acquisition is an attractive asset for us as it allows us to leverage our core manufacturing competencies, and focuses on a production process that is similar to our current printing process. It also marks the start of a long-term partnership with Schreiber Foods Inc., and of our activities in a new niche.

"Moreover, our quarterly results reflect the impact of a challenging advertising environment, which led to lower revenues in both our operating sectors. That being said, despite the soft market conditions in which we operate, we were able to maintain our profitability due to the many cost saving initiatives company-wide. In the months ahead, we will continue to adjust our cost-optimization strategy to ensure the Corporation is aligned with the current market reality, and will continue to strengthen our existing assets and develop new products and services.

Furthermore, we continue to be in excellent financial position and to generate significant cash flows. In fact, as a result of our solid balance sheet, we have been able to increase the dividend per participating share by 10% and continue to reduce our debt. We are ideally positioned to pursue our transformation, invest in the future and diversify our operations into a promising new niche."

Other Highlights

  • On February 5, 2014, the credit rating of the Corporation was lowered one level by DBRS (from BBB to BBB (low)). This change will have impact on the interest rate applicable to the credit facility, which is based on the credit rating assigned by Standard & Poor's and DBRS.
  • On February 6, 2014, the Corporation amended the terms of its $50.0 million unsecured debenture with the Solidarity Fund QFL. The debenture now expires on February 6, 2020 and bears interest at 4.011% payable every six months.
  • On February 11, 2014, TC Transcontinental Printing announced the sale of the assets of Rastar, based in Utah, USA, a subsidiary which specializes in commercial products.
  • TC Transcontinental plans to renew its normal course issuer bid when the current one expires on April 14, subject to regulatory approval.
  • On March 11, 2014, the Corporation released its fifth annual Sustainability Report titled "Guide. Mobilize. Achieve." The report 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, achievements and progress of TC Transcontinental with respect to corporate social responsibility, refer to the 2013 report, which is on the Corporation's website at www.tc.tc/social responsibility.

For more detailed financial information, please see Management's Discussion and Analysis for the first quarter ended January 31st, 2014 as well as the financial statements in the "Investors" section of our website at www.tc.tc

Outlook

The new agreements signed in December 2013 with Quebecor Media to print some of its magazines and direct marketing products will have a progressively positive impact on our results. Furthermore, we will continue to develop our offering to retailers, more specifically with respect to in-store marketing, and pursue our efforts to integrate other Canadian newspaper publishers into our highly efficient printing network. The Printing Sector will continue to optimize its operations to maintain its long-term profitability. However, these items will likely be offset by an anticipated decrease in volume within our existing direct marketing operations.

In the Media Sector, the difficult market conditions with respect to advertising revenues in our local and national markets are likely to continue. As a result, we will remain focused on optimizing our cost structure in order to limit the potential impact on profit margins. Furthermore, we will keep investing in the development of new products and services that will have value not only for consumers, but also for our main advertising clients. The acquisition of the Quebec community papers owned by Sun Media Corporation should also enable us to improve our offering in local markets once this transaction has been approved by the Competition Bureau. Lastly, the signature of new flyer distribution agreements should have a positive impact on our revenues and operating earnings as of the second quarter.

The Corporation approved a definitive agreement to acquire the assets of Capri Packaging, a division of Schreiber Foods, Inc. In addition, we are also pleased to maintain a business relationship with Schreiber Foods Inc., which, under a long-term agreement, will remain the largest customer of our packaging operations in the United States. This acquisition will allow the Corporation to apply its manufacturing expertise to pursue its transformation in the flexible packaging industry in order to generate growth. Following the closure of this transaction, we expect these items to have an annualized impact of around US$17 million on adjusted operating earnings before amortization. This transaction will be financed via our revolving term credit facility.

We will continue to generate significant cash flows in the coming quarters, and our excellent financial position should permit us to continue with our balanced approach to capital management, which allows us to reduce our debt, pay dividends and invest in our transformation focused on our core competencies. We will also keep on developing internal projects and evaluating strategic acquisitions to maintain our position in the Canadian marketing activation market, while developing our new packaging growth area to ensure the long-term success and profitability of the business.

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 amounts) 2014 2013 (1)
Net earnings applicable to participating shares $ 17.2 $ 15.7
Dividends on preferred shares, net of related taxes 1.7 1.7
Non-controlling interests (0.3 ) (0.3 )
Income tax 8.7 3.0
Share of earnings in interests in joint ventures, net of related taxes (0.3 ) (0.1 )
Net financial expenses 4.6 8.7
Impairment of assets 0.4 2.1
Restructuring and other costs 11.5 12.7
Adjusted operating earnings $ 43.5 $ 43.5
Amortization 25.1 25.9
Adjusted operating earnings before amortization $ 68.6 $ 69.4
Net earnings applicable to participating shares $ 17.2 $ 15.7
Impairment of assets (after tax) 0.3 1.5
Restructuring and other costs (after tax) 8.9 9.2
Adjusted net earnings applicable to participating shares $ 26.4 $ 26.4
Weighted Average number of participating shares outstanding 78.0 78.2
Adjusted net earnings applicable to participating shares per share $ 0.34 $ 0.34
As at January 31, 2014 As at October 31, 2013 (1)
Long-term debt $ 70.5 $ 128.9
Current portion of long-term debt 246.3 218.3
Cash (28.9 ) (26.4 )
Net indebtedness $ 287.9 $ 320.8
Adjusted operating earnings before amortization (last 12 months) $ 337.8 $ 338.6
Net indebtedness ratio 0.85 x 0.95 x
(1) 2013 financial information has been restated to reflect the impact of the adoption of IFRS 11 "Joint Arrangements", amended IAS 19 "Employee benefits" and other elements

Dividends

Dividend on Participating Shares

The Corporation's Board of Directors declared a quarterly dividend of $0.16 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on April 24, 2014 to shareholders of record at the close of business on April 4, 2014. The Corporation thus increased the dividend per participating share by 10%, or $0.06, raising the annual dividend from $0.58 to $0.64 per share. This increase reflects TC Transcontinental's solid cash flow position.

Dividend on Preferred shares

The Corporation's Board of Directors declared a quarterly dividend of $0.4161 per share on Cumulative 5-Year Rate Reset First Preferred Shares, Series D. This dividend is payable on April 15, 2014. On an annual basis, this represents a dividend of $1.6875 per preferred share.

Additional Information

Annual Meeting of Shareholders
Transcontinental Inc. will hold its annual shareholders' meeting today at 9:30 a.m. at the Centre Mont-Royal, 2200 Mansfield Street, Montreal. For those who are unable to attend in person, a live (audio only) webcast of the meeting will be available on the Corporation's website at www.tc.tc

Conference Call

Upon releasing its first quarter 2014 results, the Corporation will hold a conference call for the financial community today at 2:00 p.m. The dial-in numbers are 1 416-642-5212 or 1 866-321-6651 and the access code is 8339872. 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, Corporation Communications of TC Transcontinental, at 514-954-3581.

Profile

Largest printer and leading provider of media and marketing activation solutions in Canada, TC Transcontinental creates products and services that allow businesses to attract, reach and retain their target customers. The Corporation specializes in print and digital media, the production of magazines, newspapers, books and custom content, mass and personalized marketing, interactive and mobile applications, and door-to-door distribution.

Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B)(TSX:TCL.PR.D), including TC Transcontinental, TC Media and TC Transcontinental Printing, has over 9,000 employees in Canada and the United States, and revenues of C$2.1 billion in 2013. 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, as well as the Corporation's capacity to engage in strategic transactions and integrate acquisitions into its activities. 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, 2013, in the latest Annual Information Form and have been updated in the MD&A for the first quarter ended January 31st, 2014.

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 10, 2014.

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 10, 2014. 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) 2014
2013
Restated
Revenues$499.3 $525.6
Operating expenses 430.7 456.2
Restructuring and other costs 11.5 12.7
Impairment of assets 0.4 2.1
Operating earnings before amortization 56.7 54.6
Amortization 25.1 25.9
Operating earnings 31.6 28.7
Net financial expenses 4.6 8.7
Earnings before share of net earnings in interests in joint ventures and income taxes 27.0 20.0
Share of net earnings in interests in joint ventures, net of related taxes 0.3 0.1
Income taxes 8.7 3.0
Net earnings 18.6 17.1
Non-controlling interests (0.3) (0.3)
Net earnings attributable to shareholders of the Corporation 18.9 17.4
Dividends on preferred shares, net of related taxes 1.7 1.7
Net earnings attributable to participating shares$17.2 $15.7
Net earnings per participating share - basic and diluted$0.22 $0.20
Weighted average number of participating shares outstanding - basic (in millions) 78.0 78.2
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) 2014 2013
Restated
Net earnings$18.6 $17.1
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 (0.6) 2.1
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 (0.8) (1.5)
Related income taxes (0.2) 0.2
(1.2) 0.4
Cumulative translation differences
Net unrealized exchange gains (losses) on the translation of the financial statements of foreign operations 2.9 (0.3)
Unrealized exchange losses on the translation of a debt designated as a hedge of a net investment in foreign operations (2.5) (0.4)
0.4 (0.7)
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 (6.0) 12.0
Related income taxes (1.6) 3.0
(4.4) 9.0
Other comprehensive income (loss) (5.2) 8.7
Comprehensive income$13.4 $25.8
Attributable to:
Shareholders of the Corporation$13.7 $26.1
Non-controlling interests (0.3) (0.3)
$13.4 $25.8
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 loss Total Non-controlling interests Total equity
Balance as at October 31, 2013 (Restated)$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
Balance as at November 1, 2012$467.7 $2.5$514.2 $(84.4)$900.0 $1.4 $901.4
Net earnings - - 17.4 - 17.4 (0.3) 17.1
Other comprehensive income - - - 8.7 8.7 - 8.7
Shareholders' contributions and distributions to shareholders
Participating share redemptions (6.4) - (5.2) - (11.6) - (11.6)
Dividends - - (13.0) - (13.0) (1.4) (14.4)
Stock-option based compensation - 0.2 - - 0.2 - 0.2
Balance as at January 31, 2013 (Restated)$461.3 $2.7$513.4 $(75.7)$901.7 $(0.3)$901.4
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited
(in millions of Canadian dollars) As at As at
January 31, October 31,
2014 2013
Restated
Current assets
Cash$28.9 $26.4
Accounts receivable 343.9 419.2
Income taxes receivable 9.2 12.1
Inventories 78.7 82.0
Prepaid expenses and other current assets 13.9 13.9
474.6 553.6
Property, plant and equipment 588.7 596.0
Intangible assets 193.3 194.1
Goodwill 324.0 324.0
Investments in joint ventures 1.1 0.8
Deferred income taxes 156.2 147.7
Other assets 35.5 34.6
$1,773.4 $1,850.8
Current liabilities
Accounts payable and accrued liabilities$212.6 $272.8
Provisions 10.8 10.3
Income taxes payable 5.5 6.3
Deferred revenues and deposits 60.4 55.9
Current portion of long-term debt 246.3 218.3
535.6 563.6
Long-term debt 70.5 128.9
Deferred income taxes 77.1 67.1
Provisions 40.0 40.2
Other liabilities 234.2 235.6
957.4 1,035.4
Equity
Share capital 462.8 462.8
Contributed surplus 3.1 2.9
Retained earnings 368.4 362.5
Accumulated other comprehensive loss (18.4) (13.2)
Attributable to shareholders of the Corporation 815.9 815.0
Non-controlling interests 0.1 0.4
816.0 815.4
$1,773.4 $1,850.8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three months ended
January 31
(in millions of Canadian dollars) 2014 2013
Restated
Operating activities
Net earnings$18.6 $17.1
Adjustments to reconcile net earnings and cash flows from operating activities:
Amortization 32.0 32.2
Impairment of assets 0.4 2.1
Financial expenses on long-term debt 4.6 5.9
Net gains on disposal of assets (0.1) (0.2)
Income taxes 8.7 3.0
Stock-option based compensation 0.2 0.2
Other 1.2 2.1
Cash flows generated by operating activities before changes
in non-cash operating items and income taxes recovered (paid) 65.6 62.4
Changes in non-cash operating items 1.6 158.3
Income taxes recovered (paid) 2.8 (10.8)
Cash flows from operating activities 70.0 209.9
Investing activities
Business combinations (1.0) (23.3)
Acquisitions of property, plant and equipment (8.8) (11.1)
Disposals of property, plant and equipment 0.7 0.3
Increase in intangible assets (6.3) (4.2)
Cash flows from investing activities (15.4) (38.3)
Financing activities
Reimbursement of long-term debt (8.6) (80.6)
Net decrease in revolving term credit facility (28.0) (46.5)
Financial expenses on long-term debt (3.5) (6.6)
Dividends on participating shares (11.3) (11.3)
Dividends on preferred shares (1.7) (1.7)
Dividends paid to non-controlling interests - (1.4)
Participating share redemptions - (12.1)
Cash flows from financing activities (53.1) (160.2)
Effect of exchange rate changes on cash denominated in foreign currencies 1.0 (0.1)
Net change in cash 2.5 11.3
Cash at beginning of period 26.4 12.8
Cash at end of period$28.9 $24.1
Non-cash investing and financing activities
Net change in capital asset acquisitions financed by accounts payable$(1.4)$(4.8)

Contact Information

  • Media: Nathalie St-Jean
    Senior Advisor, Corporate
    Communications
    TC Transcontinental
    Telephone : 514 954-3581
    nathalie.st-jean@tc.tc / www.tc.tc

    Financial Community: Jennifer F. McCaughey
    Senior Director, Investor Relations
    and External Corporate Communications
    TC Transcontinental
    Telephone : 514 954-2821
    jennifer.mccaughey@tc.tc / www.tc.tc