Transcontinental Inc. announces its financial results for the first quarter of fiscal 2019

Highlights

• Revenues increased by $249.9 million, or 49.8%, from $501.7 million to $751.6 million, essentially as a result of the transformational acquisition of Coveris Americas, which contributed $306.0 million to revenues. This increase was partially mitigated by the accelerated recognition of deferred revenues of $39.8 million recorded in the first quarter of 2018 and the $19.5 million unfavourable effect of the sale of our California newspaper printing operations resulting from the agreement signed with Hearst. Adjusted revenues, which exclude the accelerated recognition of deferred revenues, increased by $289.7 million, or 62.7%, from $461.9 million to $751.6 million. Organic growth remained stable in the first quarter of 2019 compared to the corresponding period in 2018.
• Operating earnings decreased by $70.0 million, or 56.6%, from $123.6 million to $53.6 million, mainly as a result of the $39.8 million positive effect of the accelerated recognition of deferred revenue recorded in the first quarter of 2018 and the favourable impact of gains on the sale of certain activities amounting to $33.0 million in the first quarter of 2018.  Adjusted operating earnings, which exclude the accelerated recognition of deferred revenues, accelerated depreciation, restructuring and other costs (gains), impairment of assets and amortization of intangible assets arising from business combinations, increased by $6.3 million, or 8.9%, from $70.4 million to $76.7 million.
• Net earnings decreased by $30.1 million, or 51.7%, from $58.2 million to $28.1 million. Adjusted net earnings, which exclude the accelerated recognition of deferred revenues, accelerated depreciation, restructuring and other costs (gains), impairment of assets and amortization of intangible assets arising from business combinations, net of related income taxes, as well as the impact of the U.S. tax reform on deferred taxes, decreased by $6.3 million, or 12.2%, from $51.8 million to $45.5 million.
• A sign of confidence in the Corporation's transformation, the Board of Directors approved a 4.8% increase in the annual dividend, bringing it to $0.88 per share.

Montréal, February 28, 2019 - Transcontinental Inc. (TSX: TCL.A TCL.B) announces its results for the first quarter of fiscal 2019, which ended January 27, 2019.

"I am satisfied with the revenue growth we experienced in the Packaging Sector in the first quarter of 2019, said François Olivier, President and Chief Executive Officer of TC Transcontinental. We remain committed to gradually improving our profit margins during the year, in particular by realizing the expected synergies related to the transformational acquisition of Coveris Americas.

"Our Printing Sector had a more moderate start, mainly as a result of the sale of our newspaper printing operations in California. Furthermore, while we saw a slight decrease in our revenues from our retailer-related service offering, it remains healthy and resilient.

"In summary, our consolidated results demonstrated solid growth in terms of revenues reflecting the dynamic implementation of our transformation. Though our profitability was somewhat softer than expected, we continue to rigorously execute our business plan.

"To conclude, we will continue generating significant cash flows from our operating activities, which will first be allocated to reducing our indebtedness."

Financial Highlights

2019 First Quarter Results

Revenues increased by $249.9 million, or 49.8%, from $501.7 million in the first quarter of 2018 to $751.6 million in the corresponding period in 2019. Excluding the favourable effect of the accelerated recognition of deferred revenues of $39.8 million recorded in the first quarter of 2018 resulting from the agreement signed with Hearst, adjusted revenues increased by 62.7%, from $461.9 million in the first quarter of 2018 to $751.6 million in the corresponding period of 2019. This increase is essentially attributable to the acquisition of Coveris Americas, which contributed $306.0 million to revenues, and to organic growth in revenues in the Packaging Sector resulting from an increase in volume in the majority of our plants. This increase was partially offset by the $19.5 million unfavourable effect of the sale to Hearst of our newspaper printing operations, including the $7.9 million unfavourable non-cash effect of the end of the recognition of deferred revenues and, to a lesser extent, the unfavourable effect of disposals of local and regional newspapers in Québec. The increase in revenues was also mitigated by the organic decline in revenues in certain Printing Sector verticals, in particular revenues from our service offering to Canadian retailers, which decreased slightly compared to the corresponding quarter of the previous year.

Operating earnings decreased by $70.0 million, or 56.6%, from $123.6 million in the first quarter of 2018 to $53.6 million in the first quarter of 2019. This decrease is mostly due to the positive effect of the accelerated recognition of deferred revenues of $39.8 million resulting from the agreement signed with Hearst and recorded in the first quarter of 2018, as well as the favourable impact of gains on the sale of certain activities amounting to $33.0 million in the first quarter of 2018. Adjusted operating earnings increased by $6.3 million, or 8.9%, from $70.4 million to $76.7 million. Excluding the $9.9 million unfavourable non-cash effect of the end of the recognition of deferred revenues related to the San Francisco Chronicle, La Presse and The Globe and Mail in the Maritimes as well as the unfavourable effect of the stock-based compensation expense, which increased by $1.4 million as a result of the change in the share price in the first quarter of 2019 compared to the corresponding period in 2018, adjusted operating earnings increased by $17.6 million, or 25.0%. This increase is mainly attributable to the contribution from the acquisition of Coveris Americas as well as the organic growth in revenues in our Packaging Sector, partially offset by the above-mentioned organic decline in certain Printing Sector verticals.

Net earnings decreased by $30.1 million, or 51.7%, from $58.2 million in the first quarter of 2018 to $28.1 million in the first quarter of 2019. This decrease is due to lower operating earnings and higher financial expenses in the first quarter of 2019 as a result of the increase in long-term debt related to the financing of the acquisition of Coveris Americas, offset by the favourable effect of the U.S. tax reform on taxes compared to the first quarter of 2018. On a per share basis, net earnings went from $0.75 to $0.32 due to the above-mentioned items, but also to the effect of the issuance of 10.8 million Class A Subordinate Voting Shares of the Corporation. Adjusted net earnings decreased by $6.3 million, or 12.2%, from $51.8 million in the first quarter of 2018 to $45.5 million in the first quarter of 2019, mostly due to higher financial expenses, partially offset by the increase in adjusted operated earnings. On a per share basis, adjusted net earnings went from $0.67 to $0.52 as a result of the decrease in adjusted net earnings and the effect of the issuance of 10.8 million Class A Subordinate Voting Shares of the Corporation in May 2018.

For more detailed financial information, please see the Management’s Discussion and Analysis for the first quarter ended January 27, 2019 as well as the financial statements in the “Investors” section of our website at www.tc.tc

Outlook

In our Packaging Sector, the acquisitions, in particular that of Coveris Americas completed on May 1, 2018, will significantly contribute to adjusted revenues and adjusted operating earnings for the next quarter compared to the corresponding quarter of the prior year. With respect to Coveris Americas, we expect our profit margins to gradually improve over the coming quarters as a result of the effect of the synergies, to reach the target of US$10 million on an annualized basis at the end of the second quarter of 2019, as well as an increased focus on manufacturing efficiency. In our packaging operations other than those of Coveris Americas, we should continue generating organic growth in revenues throughout fiscal 2019 with the help of our well-established sales force, which should also contribute to profitability.

In our Printing Sector, we expect revenues from our service offering to Canadian retailers will be slightly lower in fiscal 2019. The newspaper publishing vertical will continue to be affected by the end of the recognition of deferred revenues related to certain newspaper printing contracts, which will have an unfavourable non-cash effect on adjusted operating earnings of $4.5 million in the first two months of the second quarter of 2019 (see Table #4). In addition, no revenues will be recognized for transition services to Hearst in 2019, compared to revenues of approximately $9 million recognized for such services in fiscal 2018. In all the other printing verticals, we expect that our revenues will continue to be affected by the same trends observed in recent quarters. Lastly, to limit the impact of these decreases, we will continue with our operational efficiency initiatives.

We expect that the Media Sector will continue to record a solid performance in fiscal 2019, both in terms of revenues and profitability.
 
In line with our strategy, we will continue to generate significant cash flows from all our operating activities, which will enable us to reduce our net indebtedness.

Reconciliation of Non-IFRS Financial Measures

The financial information has been prepared in accordance with IFRS. However, financial measures used, namely the adjusted revenues, the adjusted operating earnings before depreciation and amortization, the adjusted operating earnings, the adjusted net earnings, the adjusted net earnings per share, the net indebtedness and the 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.

We also believe that the adjusted revenues, 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 $0.22 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on April 10, 2019 to shareholders of record at the close of business on March 25, 2019. The Corporation thus increased the dividend per participating share by 4.8%, or $0.04, raising the annual dividend from $0.84 to $0.88 per share. This increase reflects TC Transcontinental's solid cash flow position.

Conference Call

Upon releasing its 2019 first quarter 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-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 a Canadian leader in its specialty media segments. For over 40 years, TC Transcontinental's mission has been to create 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 9,000 employees, the majority of which are based in Canada, the United States and Latin America. TC Transcontinental had revenues of more than C$2.6 billion for the fiscal year ended October 28, 2018. 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 exchange rate, availability of capital, raw materials costs, competition, the Corporation's capacity to generate organic growth in its Packaging Sector, the Corporation's capacity to engage in strategic transactions and effectively integrate acquisitions into its activities without affecting its growth and its profitability, while achieving the expected synergies, the political, social, regulatory and legislative environment, in particular with regard to the environment and sustainable development, the impact of digital product adoption on the demand for its printed products, change in consumption habits or loss of a major customer, the safety of its packaging products used in the food industry, innovation of its offering, the protection of its intellectual property rights, concentration of its sales in certain segments, cybersecurity and data protection, recruiting and retaining qualified personnel in certain geographic areas and industry sectors, taxation, interest rate and indebtedness level. The main risks, uncertainties and factors that could influence actual results are described in the Management's Discussion and Analysis (MD&A) for the year ended October 28, 2018 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 after the date of February 28, 2019.

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 February 28, 2019. 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

Mathieu Hébert
Corporate Treasurer
TC Transcontinental
Telephone: 514-954-4029
mathieu.hebert@tc.tc
www.tc.tc