Transcontinental Inc. announces its results for the fourth quarter and fiscal 2020
Highlights
- Continued improvement in profitability in the Packaging Sector and maintained rigorous cost control in the Printing Sector.
- Revenues of $655.7 million for the quarter ended October 25, 2020; operating earnings of $81.2 million; and net earnings attributable to shareholders of the Corporation of $51.3 million ($0.59 per share).
- Adjusted operating earnings before depreciation and amortization(1) of $146.8 million for the quarter ended October 25, 2020; adjusted operating earnings(1) of $110.1 million; and adjusted net earnings attributable to shareholders of the Corporation(1) of $72.4 million ($0.83 per share).
- Solid financial position with liquidities of $241.0 million and access to unused lines of credit of $432.8 million, for total available liquidities of $673.8 million.
- Improved net indebtedness ratio(1) to 1.9x as a result of the decrease in long-term debt of $363.0 million and the increase in adjusted operating earnings before depreciation and amortization(1) during the fiscal year.
- Launched new packaging made of 30% post-consumer recycled plastic for the case wrap of AHA® Sparkling Water, a brand of The Coca-Cola Company.
- Appointed Eric Morisset as Chief Development Officer to lead the Corporation's growth by acquisitions strategy.
(1) Please refer to the section entitled "Non-IFRS Financial Measures" in this press release for a definition of these measures.
Montréal, December 10, 2020 - Transcontinental Inc. (TSX: TCL.A TCL.B) announces its results for the fourth quarter and fiscal 2020, which ended October 25, 2020.
"We had another excellent quarter to end fiscal 2020 on a strong note, said François Olivier, President and Chief Executive Officer of TC Transcontinental. These results, an indication of our growth potential, reflect the resilience of our business model as well as the responsible management of our operations as a whole. Faced with the challenges of a year marked by COVID-19, we were able to provide our employees with a safe work environment and focus on our objectives to deliver a solid performance. I thank our employees for their dedication and exceptional work in these circumstances.
"Our Packaging Sector, our main engine of growth, posted a significant improvement in profitability compared to last year thanks to operational efficiency gains and better than expected synergies. In addition, the sustained demand from our customers for food and consumer product packaging helped to offset the impact of the pandemic in certain markets. We continued to invest significantly in research and development and are well positioned to take advantage of future opportunities, as our customers are increasingly turning to packaging that is aligned with our vision for the circular economy for plastic.
"In our Printing Sector, a resilient sector that had a good year despite the pandemic, business recovery continues and we were able to further optimize our platform by implementing cost reduction measures. Demonstrating our ability to adjust to a decrease in volume, we once again recorded an excellent operating earnings margin before depreciation and amortization in the fourth quarter, as well as strong cash flows.
"Our Media Sector also had an excellent quarter, well above our expectations, adapting its offering with innovation in the context of the pandemic. Its profitability increased considerably compared to last year, despite the sale of the specialty media assets and event planning activities towards the end of fiscal 2019, which represented a significant portion of its portfolio.
"To conclude, our solid financial position gives us the confidence needed to navigate with stability through this period and well beyond it. We continued to generate significant cash flows, which enabled us to significantly reduce the indebtedness level as per our plan. With the success of our recent quarters, we begin the new year with optimism by pursuing our strategy focused on organic growth and acquisitions."
Financial Highlights
2020 Fourth Quarter Results
Revenues decreased by $135.2 million, or 17.1%, from $790.9 million in the fourth quarter of 2019 to $655.7 million in the corresponding period of 2020. This decrease is largely attributable to lower volume in the Printing Sector, mostly due to the impact of the COVID-19 pandemic, and to the disposal of the paper packaging operations, which occurred at the end of the first quarter of 2020. These items were partially offset by acquisitions in the Printing Sector and organic growth in the Media Sector.
Operating earnings decreased by $75.0 million, or 48.0%, from $156.2 million in the fourth quarter of 2019 to $81.2 million in the fourth quarter of 2020. The decrease in operating earnings is mostly explained by the gain on the disposal of assets resulting from the sale to Hearst of the Fremont, California building in the fourth quarter of 2019.
Adjusted operating earnings increased by $3.3 million, or 3.1%, from $106.8 million in the fourth quarter of 2019 to $110.1 million in the fourth quarter of 2020. The increase in adjusted operating earnings is largely attributable to organic growth in operating earnings in the Packaging and Media sectors, partially offset by the disposal of the paper packaging operations and lower volume in the Printing Sector.
In the Packaging Sector, adjusted operating earnings increased by $0.6 million, from $38.1 million in the fourth quarter of 2019 to $38.7 million in the fourth quarter of 2020. Excluding the impact of the disposal of the paper packaging operations, this increase would have been $3.4 million. This increase is attributable to the realization of synergies and operational efficiency initiatives in the sector and an additional contribution from higher-margin segments, partially offset by the negative impact of the significant and rapid increase in the price of resin. This solid performance is reflected in the significant increase in the sector's adjusted operating earnings margin, which went from 9.3% in the fourth quarter of 2019 to 11.2% in the fourth quarter of 2020.
In the Printing Sector, adjusted operating earnings decreased by $2.4 million, or 3.6%, from $67.2 million in the fourth quarter of 2019 to $64.8 million in the fourth quarter of 2020. This decrease is explained by lower volume due to the impact of the COVID-19 pandemic, partially offset by measures taken by the Corporation to reduce its costs and by the Canada Emergency Wage Subsidy. Excluding the subsidy, the sector's adjusted operating earnings margin remained relatively stable, going from 19.5% in the fourth quarter of 2019 to 18.4% in the fourth quarter of 2020, despite a significant decrease in revenues, mostly as a result of cost reduction initiatives.
The Media Sector posted an excellent quarter to end the year on a strong note. In the Other category, which includes the Media Sector, certain head office costs as well as the elimination of inter-segment sales, adjusted operating earnings increased by $5.1 million, from $1.5 million in the fourth quarter of 2019 to $6.6 million in the fourth quarter of 2020. This increase is mainly explained by the excellent performance of the Media Sector combined with cost reduction initiatives at head office and the favourable variation in the stock-based compensation expense.
Net earnings attributable to shareholders of the Corporation decreased by $61.0 million, from $112.3 million in the fourth quarter of 2019 to $51.3 million in the fourth quarter of 2020. This change is due to lower operating earnings, mainly as a result of the gain on the disposal of assets resulting from the sale to Hearst of the Fremont, California building in the fourth quarter of 2019, mitigated by a decrease in financial expenses and income taxes. On a per share basis, net earnings attributable to shareholders of the Corporation went from $1.28 to $0.59.
Adjusted net earnings attributable to shareholders of the Corporation increased by $2.5 million, or 3.6%, from $69.9 million in the fourth quarter of 2019 to $72.4 million in the fourth quarter of 2020. This increase is mostly explained by a decrease in net financial expenses resulting from a reduction in net indebtedness and a lower weighted average interest rate, combined with higher adjusted operating earnings, largely attributable to organic growth in operating earnings in the Packaging and Media sectors. The increase in adjusted net earnings attributable to shareholders of the Corporation is partially offset by the increase in adjusted income taxes. On a per share basis, adjusted net earnings attributable to shareholders of the Corporation went from $0.80 to $0.83.
Fiscal 2020 Results
Revenues decreased by $464.8 million, or 15.3%, from $3,038.8 million in fiscal 2019 to $2,574.0 million in fiscal 2020. This decrease is largely due to lower volume in the Printing Sector, which has been severely affected by the COVID-19 pandemic since April 2020 and the disposal of the paper packaging operations, which occurred at the end of the first quarter of 2020. In addition, the sale of the specialty media assets and event planning activities in 2019 also contributed to the decrease. The organic decline in the Packaging Sector is due to the decrease in the price of resin and the organic decline in the paper packaging operations before their disposal in January 2020. Excluding these items, the Packaging Sector would have generated positive organic growth in fiscal 2020.
Operating earnings decreased by $68.1 million, or 22.0%, from $309.5 million in fiscal 2019 to $241.4 million in fiscal 2020. The decrease in operating earnings is mostly explained by the gain on the disposal of assets resulting from the sale to Hearst of the Fremont, California building in 2019.
Adjusted operating earnings increased by $4.8 million, or 1.4%, from $348.0 million in fiscal 2019 to $352.8 million in fiscal 2020. The increase in adjusted operating earnings is largely attributable to organic growth in operating earnings in the Packaging and Media sectors, partially offset by lower volume in the Printing Sector and the disposal of the paper packaging operations.
In the Packaging Sector, adjusted operating earnings increased by $14.6 million, from $135.5 million in fiscal 2019 to $150.1 million in fiscal 2020. This increase is attributable to the realization of synergies and operational efficiency initiatives in the sector and an additional contribution from higher-margin segments, partially offset by the disposal of the paper packaging operations at the end of the first quarter of 2020 and the significant and rapid increase in the price of resin in the fourth quarter of the year. This solid performance is reflected in the significant increase in the sector's adjusted operating earnings margin, which went from 8.4% in fiscal 2019 to 10.6% in fiscal 2020.
In the Printing Sector, adjusted operating earnings decreased by $9.6 million, from $220.1 million in fiscal 2019 to $210.5 million in fiscal 2020. This decrease is largely explained by lower volume mostly due to the impact of the COVID-19 pandemic. The operational efficiency initiatives undertaken at the beginning of the fiscal year allowed adjusted operating earnings to remain stable for the first five months of fiscal 2020. However, the decline in adjusted operating earnings has been more significant since the onset of the COVID-19 pandemic, which has greatly affected the sector since April 2020. Cost reduction initiatives combined with the eligibility for the Canada Emergency Wage Subsidy partially mitigated the decrease in revenues.
Net earnings attributable to shareholders of the Corporation decreased by $34.4 million, or 20.7%, from $166.1 million in fiscal 2019 to $131.7 million in fiscal 2020. This decrease is mainly attributable to the previously explained lower operating earnings, partially offset by a decrease in net financial expenses resulting from a reduction in net indebtedness and a lower weighted average interest rate, as well as a decrease in income taxes. On a per share basis, net earnings attributable to shareholders of the Corporation went from $1.90 to $1.51 due to the previously mentioned items.
Adjusted net earnings attributable to shareholders of the Corporation increased by $6.8 million, or 3.1%, from $220.2 million in fiscal 2019 to $227.0 million in fiscal 2020. This increase is mostly attributable to a decrease in net financial expenses resulting from a reduction in net indebtedness and a lower weighted average interest rate, combined with higher adjusted operating earnings. These items were partially offset by the increase in adjusted income taxes. On a per share basis, adjusted net earnings attributable to shareholders of the Corporation went from $2.52 to $2.61.
For more detailed financial information, please see the Management’s Discussion and Analysis for the fourth quarter ended October 25, 2020 as well as the financial statements in the “Investors” section of our website at www.tc.tc.
Outlook
In the Packaging Sector, the vast majority of our operations support the retail supply chain for food and everyday consumer product retailers, which are experiencing an increase in volume due to the COVID-19 pandemic. Despite the uncertainties related to the pandemic, we should see organic growth in revenues in fiscal 2021. The significant and rapid increase in the price of resin seen recently should have a negative impact on the sector's profitability in the first quarter. In addition, the disposal of the paper packaging operations, which occurred in January 2020, will continue to have a negative impact on revenues and profitability in the first quarter. Excluding the impact of resin and the disposal of the paper packaging operations, we should post a slight increase in operating earnings compared to the prior fiscal year, as a result of our synergies, our operational efficiency initiatives and the anticipated organic growth.
In the Printing Sector, the COVID-19 pandemic should continue to negatively affect several of our customers, and this should have an adverse impact on our revenues for the first half of fiscal 2021. Operational efficiency initiatives and the continuation, to a lesser extent, of the Canada Emergency Wage Subsidy should mitigate the impact of lower volume on operating earnings. With the gradual recovery in printing volume, we should see organic growth in revenues in the second half of fiscal 2021. Excluding amounts related to the Canada Emergency Wage Subsidy, we should see growth in operating earnings in fiscal 2021 compared to fiscal 2020.
To conclude, despite the fact that the impact of the COVID-19 pandemic persists, we should continue to generate significant cash flows from all our activities. This should enable us to reduce our net indebtedness, while providing us with the desired flexibility to continue growing through strategic and targeted acquisitions.
Non-IFRS Financial Measures
In this document, unless otherwise indicated, all financial data are prepared in accordance with International Financial Reporting Standards (IFRS) and the term "dollar", as well as the symbol "$" designate Canadian dollars.
In addition, in this press release, we also use non-IFRS financial measures for which a complete definition is presented below and for which a reconciliation to financial information in accordance with IFRS is presented in the section entitled "Reconciliation of Non-IFRS Financial Measures" and in Note 3, "Segmented Information", to the annual consolidated financial statements for the year ended October 25, 2020.
Reconciliation of Non-IFRS Financial Measures
The financial information has been prepared in accordance with IFRS. However, financial measures used, namely adjusted revenues, adjusted operating earnings before depreciation and amortization, adjusted operating earnings, adjusted operating earnings margin, adjusted income taxes, adjusted net earnings attributable to shareholders of the Corporation, adjusted net earnings attributable to shareholders of the Corporation per share, net indebtedness and net indebtedness ratio, 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.
The Corporation also believes that these measures are useful indicators of the performance of its operations and its ability to meet its financial obligations. Furthermore, management also uses some of these non-IFRS financial measures to assess the performance of its activities and managers.
Dividend
The Corporation's Board of Directors declared a quarterly dividend of $0.225 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on January 19, 2021 to shareholders of record at the close of business on January 5, 2021.
Normal Course Issuer Bid
The Corporation had been authorized to repurchase, for cancellation on the open market, or subject to the approval of any securities authority by private agreements, between October 1, 2019 and September 30, 2020, or at an earlier date if the Corporation concludes or cancels the offer, up to 1,000,000 of its Class A Subordinate Voting Shares and up to 190,560 of its Class B Shares.
On February 27, 2020, the Corporation was authorized to modify its share repurchase program in order to increase the maximum number of Class A Subordinate Voting Shares it is allowed to repurchase from 1,000,000 Class A Subordinate Shares to 2,000,000 Class A Subordinate Voting Shares. All other terms and conditions of the repurchase program remained unchanged.
During the year ended October 25, 2020, the Corporation redeemed and cancelled 450,450 of its Class A Subordinate Voting Shares at a weighted average price of $15.70, for a total cash consideration of $7.1 million (no shares repurchased since February 2020). The repurchases were made in the normal course of business at market prices through the Toronto Stock Exchange. The excess of the total consideration over the carrying amount of the shares, in the amount of $3.3 million, was applied against retained earnings.
On September 18, 2020, the Corporation was authorized to repurchase, for cancellation on the open market, or subject to the approval of any securities authority by private agreements, between October 1, 2020 and September 30, 2021, or at an earlier date if the Corporation concludes or cancels the offer, up to 1,000,000 of its Class A Subordinate Voting Shares and up to 191,320 of its Class B Shares. Under the current repurchase program, the Corporation has not redeemed any shares to date.
Additional information
Conference Call
Upon releasing its 2020 fourth quarter results, the Corporation will hold a conference call for the financial community on December 10, 2020 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-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 a leader in flexible packaging in North America, and Canada’s largest printer. The Corporation is also positioned as the leading Canadian French-language educational publishing group. For over 40 years, TC Transcontinental's mission has been to create quality products and services that allow businesses to attract, reach and retain their target customers.
Respect, teamwork, performance and innovation are the strong values held by the Corporation and its employees. TC Transcontinental'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 8,000 employees, the majority of which are based in Canada, the United States and Latin America. TC Transcontinental had revenues of approximately C$2.6 billion for the fiscal year ended October 25, 2020. For more information, visit TC Transcontinental's website at 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, structural changes in the industries in which the Corporation operates, the impact of digital product development and adoption on the demand for retailer-related services and other printed products, the Corporation's ability to generate organic growth in highly competitive industries, the Corporation's ability to complete acquisitions in the packaging industry and properly integrate them, the inability to maintain or improve operational efficiency and avoid disruptions that could affect its ability to meet deadlines, cybersecurity and data protection, the political and social environment as well as regulatory and legislative changes, in particular with regard to the environment and door-to-door distribution, changes in consumption habits related, in particular, to issues involving sustainable development and the use of certain products or services such as door-to-door distribution, change in consumption habits or loss of a major customer, customer consolidation, the safety and quality of its packaging products used in the food industry, the protection of its intellectual property rights, the exchange rate, availability of capital at a reasonable rate, bad debts from certain customers, import and export controls, raw materials and transportation costs, recruiting and retaining qualified personnel in certain geographic areas and industry sectors, taxation, interest rates and the impact of the COVID-19 pandemic on its operations, facilities and financial results, changes in consumption habits from consumers and changes in the operations and financial position of the Corporation's customers due to the pandemic and the effectiveness of plans and measures implemented in response thereto. The main risks, uncertainties and factors that could influence actual results are described in the Management's Discussion and Analysis for the year ended October 25, 2020 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 non-recurring or other unusual items, nor of disposals, business combinations, mergers or acquisitions which may be announced or entered into after the date of December 10, 2020. 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 10, 2020. 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
Yan Lapointe
Director, Investor Relations
TC Transcontinental
Telephone: 514-954-3574
yan.lapointe@tc.tc
www.tc.tc
