Transcontinental Inc. announces its financial results for fiscal 2017

Fiscal 2017 Highlights

  • Revenues decreased by $12.3 million, or 0.6%.
  • Operating earnings increased by $89.2 million, from $212.8 million to $302.0 million. Adjusted operating earnings, which exclude restructuring and other costs (gains) and impairment of assets, increased by $9.9 million, from $283.4 million to $293.3 million, or 3.5%.
  • Net earnings increased by $65.2 million, from $146.3 million to $211.5 million. Adjusted net earnings, which exclude restructuring and other costs (gains) and impairment of assets, net of related taxes, increased by $5.9 million, from $196.3 million to $202.2 million, or 3.0%.
  • Maintained a solid financial position, with a net indebtedness ratio of 0.3x.
  • Concluded an expanded agreement with Lowe's Canada which includes the renewal of the agreement with RONA and the addition of the printing of Lowe's flyers in Canada. This agreement represents revenues of $200 million over five years and includes all services to retailers for all Lowe's and RONA banners in the country.
  • Sold its media assets in Atlantic Canada and launched a process for the sale of its local and regional newspapers in Québec and Ontario. To date, close to 60% of these newspapers have been sold.
  • Acquired, subsequent to the end of the fiscal year, Les Industries Flexipak Inc., a flexible packaging supplier located in Montréal, Québec.

 

Montréal, December 14, 2017 - Transcontinental Inc. (TSX: TCL.A TCL.B) announces its results for fiscal 2017, which ended October 29, 2017.

"I am very proud of our performance in 2017," said François Olivier, President and Chief Executive Officer of TC Transcontinental. "While pursuing our transformation with determination, we recorded, for a third consecutive year, the highest profitability in our history."

"The printing division posted excellent results in 2017 and continued to improve its profitability, notably as a result of increased demand from Canadian retailers for our integrated service offering. We also renewed and expanded our long-term agreements with large retailers. Finally, we implemented measures to optimize the utilization of our printing platform."

"In the packaging division, we successfully integrated Robbie Manufacturing and Flexstar Packaging. With the investments made in our platform and the development of our sales force, many business opportunities came to fruition this year. As a result, this division generated sustained organic growth in 2017. Lastly, we pursued numerous acquisition initiatives and recently announced the acquisition of Les Industries Flexipak Inc., located in Montréal."

"In the Media Sector, we continued to strategically transform our asset portfolio to refocus on our most promising niches. Our specialty media and educational book publishing activities generated solid results in 2017. In addition, we disposed of our publications in Atlantic Canada and have already sold close to 60% of our local and regional newspapers in Québec and Ontario."

"To conclude, with our sound financial position and our significant cash flows, we are very well positioned to continue building our North American flexible packaging platform."


Fiscal 2017 Results

Revenues went from $2,019.5 million in fiscal 2016 to $2,007.2 million in fiscal 2017, a decrease of $12.3 million, or 0.6%. Excluding the unfavourable impact from the sale of newspapers and other media assets in 2016 and 2017 related to the Corporation's strategy, as well as the favourable exchange rate effect, revenues increased by $58.6 million, or 3.0%. This increase is mostly due to the contribution from acquisitions, particularly in the packaging division, higher demand for all services to Canadian retailers, notably under the expanded agreement with Lowe's Canada, higher volume in the packaging division and additional volume resulting from the agreement to print the Toronto Star. However, the contribution of these factors was mitigated by lower volume in printing verticals not related to services to Canadian retailers, notably as a result of the completion of the non-recurring agreement to print Canada's Census forms in 2016, and reduced activity in the local and regional newspaper publishing niche in Québec and Ontario in the Media Sector.

Operating earnings increased by $89.2 million, or 41.9%, from $212.8 million in fiscal 2016 to $302.0 million in fiscal 2017. This increase is mostly attributable to the decrease in the asset impairment charge as a result of a charge related to intangible assets of daily and weekly newspapers outside Québec in 2016, as well as to the decrease in restructuring costs as a result of gains on the sale of certain activities in the Media Sector and lower costs due to workforce reduction in 2017. Adjusted operating earnings increased by $9.9 million, or 3.5%, from $283.4 million in fiscal 2016 to $293.3 million in fiscal 2017. Excluding the $16.7 million unfavourable effect of the stock-based compensation expense as a result of the change in the share price in fiscal 2017 compared to fiscal 2016, the unfavourable impact from the sale of newspapers and other media assets in 2016 and 2017, as well as the favourable exchange rate effect, adjusted operating earnings increased by $23.9 million, or 8.5%. This increase is mostly attributable to the contribution from acquisitions and the favourable impact of cost reduction initiatives in the printing division and in the local and regional newspaper publishing activities in the Media Sector, partially offset by the effect of lower volume in printing verticals that are not related to Canadian retailer services.

Net earnings increased by $65.2 million, from $146.3 million in fiscal 2016 to $211.5 million in fiscal 2017. This increase is mostly attributable to the increase in operating earnings, as explained above, partially offset by the increase in income taxes. On a per share basis, net earnings went from $1.89 to $2.73. Excluding restructuring and other costs (gains) and impairment of assets, net of related income taxes, adjusted net earnings increased by $5.9 million, or 3.0%, from $196.3 million in fiscal 2016 to $202.2 million in fiscal 2017. This increase is attributable to the increase in adjusted operating earnings, as explained above. On a per share basis, adjusted net earnings went from $2.53 to $2.61.

2017 Fourth Quarter Results

Revenues went from $555.6 million in the fourth quarter of 2016 to $527.2 million in the fourth quarter of 2017, a decrease of $28.4 million, or 5.1%. Excluding the unfavourable impact from the sale of newspapers and other media assets in 2017 related to the Corporation's strategy and the unfavourable exchange rate effect, revenues increased by $3.3 million, or 0.6%. This increase is mostly due to the contribution from acquisitions, particularly in the packaging division, and to higher volume in this division. However, the contribution of these factors was mitigated by lower volume in printing verticals that are not related to services to Canadian retailers and reduced activity in the local and regional newspaper publishing niche in Québec and Ontario in the Media Sector.

Operating earnings increased by $22.3 million, or 27.4%, from $81.3 million in the fourth quarter of 2016 to $103.6 million in the fourth quarter of 2017. This increase is mostly attributable to the decrease in the asset impairment charge as a result of a lower charge in the fourth quarter of 2017  in the local and regional newspaper publishing niche in Québec and Ontario in the Media Sector, as well as to the decrease in restructuring costs as a result of gains on the sale of certain activities in that same sector and lower costs due to workforce reduction in the fourth quarter of 2017. Adjusted operating earnings decreased by $9.0 million, or 8.4%, from $107.4 million in the fourth quarter of 2016 to $98.4 million in the fourth quarter of 2017. Excluding the $3.6 million unfavourable effect of the stock-based compensation expense as a result of the change in the share price in the fourth quarter of 2017 compared to the corresponding period in 2016, the unfavourable impact from the sale of newspapers and other media assets in 2017, as well as the unfavourable exchange rate effect, adjusted operating earnings only decreased by $0.4 million, or 0.4%. This slight decrease is mostly attributable to the effect of lower volume in printing verticals that are not related to services to Canadian retailers, mitigated by the contribution from acquisitions and the favourable effect of cost reduction initiatives in the printing division and in the local and regional newspaper publishing niche in Québec and Ontario in the Media Sector.

Net earnings increased by $15.7 million, from $57.7 million in the fourth quarter of 2016 to $73.4 million in the fourth quarter of 2017. This increase is mostly attributable to the increase in operating earnings, as explained above, partially offset by the increase in income taxes. On a per share basis, net earnings went from $0.75 to $0.94. Excluding restructuring and other costs (gains) and impairment of assets, net of related income taxes, adjusted net earnings decreased by $8.3 million, or 10.8%, from $76.6 million in the fourth quarter of 2016 to $68.3 million in the fourth quarter of 2017. This decrease is attributable to the decline in adjusted operating earnings, as explained above. On a per share basis, adjusted net earnings went from $0.99 to $0.88.

For more detailed financial information, please see the Management's Discussion and Analysis for the fiscal year ended October 29, 2017 as well as the financial statements in the "Investors" section of our website at www.tc.tc

Subsequent Events

Sale of local and regional newspapers in Québec and Ontario

In November and December 2017, the Corporation disposed of several groups of local and regional newspapers in the province of Québec, representing a total of 34 newspapers and related web properties, as well as one website in exchange for cash consideration and an amount receivable.

These sales of newspapers are in the context of the sale process of local and regional newspapers in Québec and Ontario announced by the Corporation on April 18, 2017.

Business combination

On October 31, 2017, the Corporation acquired all the shares of Les Industries Flexipak Inc. ("Flexipak"), a flexible packaging supplier located in Montréal, Québec. The Corporation will perform the assessment of the fair value of assets acquired and liabilities assumed of Flexipak during the next fiscal year.

This acquisition allows the Corporation to pursue its development in the packaging industry.

Outlook for 2018

In the printing division, we expect revenues from all our services to Canadian retailers to remain relatively stable in fiscal 2018 compared to fiscal 2017. We will benefit, in the first months of the fiscal year, from the additional contribution from the expanded agreement with Lowe's Canada, and we intend to seize the opportunities to expand our services to our retail customers. In all the other printing verticals, we expect that our revenues will continue to be affected by a decline in volume caused by the same trends in the advertising market. In addition, in the newspaper printing activities, we will experience a volume decrease as a result of the end of the printing of La Presse as of January 2018 and The Globe and Mail in the Maritimes as of December, 2017. To partially offset the lower volume, we will continue with our operational efficiency initiatives, in particular the previously announced consolidation of our newspaper printing activities in Québec.

In our packaging division, the acquisition of Les Industries Flexipak Inc., completed in October 2017, will contribute to results in fiscal 2018, and we expect to maintain our disciplined acquisition approach. We also rely on our sales force to continue developing our funnel of potential customers and we expect for other sales to materialize. As a result of the temporary disruption in resin supply caused by the hurricane in the Gulf Coast of the United States in summer 2017, the price of several plastic resins increased and could have an unfavourable impact on costs in the first half of fiscal 2018.

In the Media Sector, we expect that the Business and Education Group will continue to perform well by diversifying its revenues in niches that depend little on advertising, while a reduction in advertising revenues will have an unfavourable impact on the print version of our specialty publications. In addition, our Sector revenues will be affected in 2018 by the sale of our media assets related to local and regional newspapers, but we will continue to adjust our cost structure based on the volume of activity.

To conclude, in fiscal 2018, we expect to continue generating significant cash flows from our operating activities and maintaining our excellent financial position, which should enable us to continue making acquisitions to support our transformation into packaging.

Reconciliation of Non-IFRS Financial Measures

The financial information has been prepared in accordance with IFRS. However, financial measures used, namely the adjusted operating earnings, the adjusted operating earnings before depreciation and amortization, the adjusted net earnings,  the adjusted net earnings per share, the net indebtedness and the net indebtedness ratio, for which a complete definition is presented in the Management's Discussion and Analysis for the fiscal year ended October 29, 2017, and for which a reconciliation is presented in the following table, do not have any standardized meaning under IFRS and could be calculated differently by other companies. We believe that many of our readers analyze the financial performance of the Corporation's activities based on these non-IFRS financial measures as such measures may allow for easier comparisons between periods. These measures should be considered as a complement to financial performance measures in accordance with IFRS. They do not substitute and are not superior to them.

We also believe that the adjusted operating earnings before depreciation and amortization, the adjusted operating earnings, that takes into account the impact of past investments in property, plant and equipment and intangible assets, and the adjusted net earnings are useful indicators of the performance of our operations. Furthermore, management also uses some of these non-IFRS financial measures to assess the performance of its activities and managers.

Regarding the net indebtedness and net indebtedness ratio, we believe that these indicators are useful to measure the Corporation's financial leverage and ability to meet its financial obligations.

Dividend

The Corporation's Board of Directors declared a quarterly dividend of $0.20 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on January 23, 2018 to shareholders of record at the close of business on January 4, 2018.

Conference Call

Upon releasing its fiscal 2017 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

TC Transcontinental is Canada's largest printer and a key supplier of flexible packaging in North America. The Corporation is also a leader in its specialty media segments. 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 its stakeholders is to pursue its business activities in a responsible manner.

Transcontinental Inc. (TSX: TCL.A TCL.B), known as TC Transcontinental, has over 6,500 employees in Canada and the United States, and revenues of C$2.0 billion in 2017.  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, concentration of its sales in certain segments, cybersecurity and data protection, recruiting and retaining qualified personnel in certain geographic areas, taxation and interest rate. 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 October 29, 2017 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 14, 2017.

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 14, 2017. 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.

 

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For 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
Shirley Chenny
Advisor, Investor Relations
TC Transcontinental
Telephone: 514-954-4166
shirley.chenny@tc.tc
www.tc.tc