Communiqués de presse

Transcontinental Inc. announces its financial results for the third quarter of Fiscal 2016

Highlights

  • Revenues decreased 2.9%.
  • Adjusted operating earnings before depreciation and amortization decreased 7.5%.
  • Adjusted net earnings attributable to shareholders of the Corporation decreased 9.6%.
  • Net earnings attributable to shareholders of the Corporation per share increased 7.3%.
  • Maintained a solid financial position, with a net indebtedness ratio of 0.8x.
  • Acquired Robbie Manufacturing, a flexible packaging supplier located in Lenexa, Kansas.
  • Successfully started printing the Toronto Star in July.

Montreal, September 8, 2016 - Transcontinental Inc. (TSX: TCL.A TCL.B) announces its results for the third quarter of Fiscal 2016, which ended July 31, 2016.

"The third quarter results are consistent with our expectations and reflect difficult market realities, but they demonstrate that the actions we have taken mitigated the impact on our profitability", said François Olivier, President and Chief Executive Officer of TC Transcontinental. "These actions will continue to be beneficial in the next quarter. In our printing division, we continued to optimize our platform and successfully started printing the Toronto Star, which will fully contribute starting next quarter. Our Media Sector continued to face declining advertising revenues, but the efficiency measures implemented over the last few months are bearing fruit. As for our packaging division, we are deploying resources to develop sales and we are seeing encouraging progress. Furthermore, the recent acquisition of Robbie Manufacturing allows us to expand our network of flexible packaging plants in North America."

"Finally, our excellent financial position and our significant cash flows will allow us to continue to invest prudently and to pursue our acquisitions in the packaging segment, our future growth area."

Tableau Q3

2016 Third Quarter Results
Revenues for the third quarter of 2016 went from $481.9 million to $467.8 million, a decrease of 2.9%. The contribution from acquisitions, notably those of Ultra Flex Packaging and Robbie Manufacturing, as well as the appreciation of the U.S. dollar against the Canadian dollar were unable to offset the decrease in revenues from existing operations. In the printing division, the decline in advertising spending continued to impact several segments. With respect to flyer printing for Canadian retailers, the number of flyers and the number of pages remained stable. The decrease in revenues from existing operations was partially offset by the printing of the Toronto Star, which started in July 2016. In addition, the decline in the packaging division is mainly attributable to a reduction in demand from Transcontinental Capri's main customer and the loss of a customer as a result of its sale. In the Media Sector, the decline in advertising revenues continued to have an effect on local newspapers.

Adjusted operating earnings went from $71.6 million to $62.7 million in the third quarter of 2016, a decrease of 12.4%. The decline in adjusted operating earnings from existing operations is due to the decline in revenues mentioned above and the investments made to increase capacity and support the growth strategy of the packaging division. The decrease was partially offset by the contribution from acquisitions, the favourable exchange rate effect and the ongoing cost reduction initiatives in the printing division and the Media Sector.

Adjusted net earnings attributable to shareholders of the Corporation decreased 9.6%, from $48.8 million, or $0.62 per share, to $44.1 million, or $0.57 per share. This decrease is mainly due to lower adjusted operating earnings, partially offset by the reduction in adjusted income taxes and net financial expenses. Net earnings attributable to shareholders of the Corporation went from $43.3 million, or $0.55 per share, to $45.9 million, or $0.59 per share. This increase is mainly attributable to the favourable variation in restructuring and other costs (revenues), net of related taxes, and a reduction in income taxes, partially offset by lower adjusted operating earnings.

Other Highlights

  • On May 30, 2016, TC Transcontinental announced the divestiture of its assets in the province of Saskatchewan. The transaction included the sale of its 13 local newspapers and associated web properties, as well as some commercial printing equipment and related book of business.
  • On June 30, 2016, TC Transcontinental announced the acquisition of Robbie Manufacturing, a flexible packaging supplier located in Lenexa, Kansas. Robbie Manufacturing specializes in on-site packaging needs for grocery stores, shrink wrap packaging of multipack consumer goods, and packaging solutions for food processors. With more than 175 employees, it generated US$50 million in annual revenues in its most recent fiscal year.
  • On July 28, 2016, the Corporation announced that it sold most of its commercial printing line of business operated from its plant in Dartmouth, Nova Scotia.

Highlights of the First Nine Months
For the first nine months of 2016, TC Transcontinental's revenues went from $1,462.1 million to $1,463.9 million. The acquisitions of Ultra Flex Packaging and, to a lesser extent, Robbie Manufacturing as well as the appreciation of the U.S. dollar against the Canadian dollar more than offset the decrease in revenues from existing operations. In the printing division, the decline in advertising spending in several segments and the loss of a U.S. customer were partially offset by previously announced new contracts. With respect to flyer printing for Canadian retailers, the number of flyers and number of pages remained stable. In the packaging division, the decline is attributable to a reduction in demand from Transcontinental Capri's main customer and the loss of a customer as a result of its sale. In the Media Sector, the decline in advertising revenues continued to have an effect on local newspapers. In addition, distribution activities were impacted by the exit of a retailer from the Canadian market in 2015.

Adjusted operating earnings went from $188.9 million to $176.0 million, a decrease of 6.8%. The decline in adjusted operating earnings from existing operations is due to the decline in revenues mentioned above and the investments made to increase capacity and support the growth strategy of the packaging division. The decrease was partially offset by the contribution from acquisitions, the favourable exchange rate effect and ongoing cost reduction initiatives in the printing division and the Media Sector.

Adjusted net earnings attributable to shareholders of the Corporation decreased 5.1%, from $126.1 million, or $1.61 per share, to $119.7 million, or $1.54 per share. This decrease is mainly due to lower adjusted operating earnings, partially offset by the reduction in adjusted income taxes and net financial expenses. Net earnings attributable to shareholders of the Corporation went from $162.4 million, or $2.08 per share, to $88.6 million, or $1.14 per share. This decrease is attributable to several unusual items totalling close to $90 million in 2015 and 2016, namely a gain on the sale of the consumer magazine publishing activities, a reversal of the provision for multi-employer pension plans, a gain on the sale of a building and an asset impairment charge. To a lesser extent, lower adjusted operating earnings also contributed to the decrease.

For more detailed financial information, please see Management's Discussion and Analysis for the third quarter ended July 31st, 2016 as well as the financial statements in the "Investors" section of our website at www.tc.tc

Outlook for 2016
Flyer printing volume is expected to remain relatively stable during the fourth quarter of 2016. In addition, the net impact of new contracts, including the contract to print the Toronto Star, will be more significant in the fourth quarter. We will also continue to grow our in-store marketing product offering for retailers. However, these items should be more than offset by the impact of the decline in the advertising market on our traditional commercial, newspaper and magazine printing activities. With respect to adjusted operating earnings, our operational efficiency initiatives will also have a more significant contribution in the fourth quarter, which should improve the performance of this division.

In our flexible packaging division, the contribution from the acquisitions of Robbie Manufacturing and Ultra Flex Packaging will continue to have a positive impact during the fourth quarter. In addition, we will continue developing new business opportunities and qualifying our products with customers to drive growth in this division. We expect that several of these opportunities will materialize starting in 2017. However, the reduced demand from Transcontinental Capri's main customer and the impact of the loss of a customer as a result of its sale will continue to create an organic decline within this business unit during the fourth quarter. Furthermore, our recent investments made to increase our capacity and support our development strategy will also have an unfavourable impact on adjusted operating earnings in the fourth quarter.

Within the Media Sector, the impact of the transformation of the advertising market should continue to affect our newspaper publishing activities. However, cost reductions initiatives should enable us to reduce the impact of the advertising market on our adjusted operating earnings during the last quarter of 2016.

Lastly, we expect to continue generating significant cash flows during the next quarters, and our excellent financial position should permit us to continue our transformation in the flexible packaging industry. We will maintain our disciplined acquisition approach in this promising market in order to invest in quality assets that meet our strategic criteria.

Reconciliation of Non-IFRS Financial Measures
Financial information has 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 normalized for evaluating the Corporation's operating performance. Management uses such non-IFRS financial information to evaluate the performance of its operations and managers. 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.

Rapprochement Q3

Dividend
The Corporation's Board of Directors declared a quarterly dividend of $0.185 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on October 20, 2016 to shareholders of record at the close of business on October 3, 2016.

Conference Call
Upon releasing its third quarter 2016 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, Communications of TC Transcontinental, at 514-954-3581.

Profile
Canada's largest printer with operations in print, flexible packaging, publishing and digital media, 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 and philanthropic activities in a responsible manner.

Transcontinental Inc. (TSX: TCL.A TCL.B), known as TC Transcontinental, has close to 8,000 employees in Canada and the United States, and revenues of C$2.0 billion in 2015.

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, 2015, in the latest Annual Information Form and have been updated in the MD&A for the third quarter ended July 31st, 2016.

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 September 8, 2016.

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 September 8, 2016. 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, Communications
TC Transcontinental
Telephone: 514-954-3581
nathalie.st-jean@tc.tc

Financial Community
Jennifer F. McCaughey
Vice President, Communications
TC Transcontinental
Telephone: 514-954-2821
jennifer.mccaughey@tc.tc