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

Highlights

• Revenues increased by $232.7 million, or 43.5%, from $534.7 million to $767.4 million, essentially as a result of the transformational acquisition of Coveris Americas, which contributed $318.4 million to revenues. This increase was mitigated by the accelerated recognition of deferred revenues of $62.3 million recorded in the second quarter of 2018 as well as the unfavourable effect of the sale of our California newspaper printing operations and the disposal of local and regional newspapers in Québec.
• Adjusted revenues ⁽¹⁾ increased by $295.0 million, or 62.4%, from $472.4 million to $767.4 million.
• Operating earnings decreased by $55.9 million, or 56.5%, from $99.0 million to $43.1 million, mainly as a result of the effect of the accelerated recognition of deferred revenues recorded in the second quarter of 2018.
• Adjusted operating earnings ⁽¹⁾ increased by $13.3 million, or 18.9%, from $70.3 million to $83.6 million, mainly as a result of the contribution from the acquisition of Coveris Americas.
• Net earnings decreased by $46.6 million, or 67.6%, from $68.9 million to $22.3 million due to the decline in operating earnings and higher financial expenses arising from the acquisition of Coveris Americas.
• Adjusted net earnings ⁽¹⁾ increased by $4.1 million, or 8.5%, from $48.5 million to $52.6 million due to higher adjusted operating earnings combined with a decrease in adjusted income taxes ⁽¹⁾.
• Optimization of the printing platform with the installation of two state-of-the-art presses as well as the gradual reduction of activities at Transcontinental Brampton in Ontario, leading to the plant's complete closure at the end of December 2019.
• First Canadian-based manufacturer to join the Ellen MacArthur Foundation's New Plastics Economy Global Commitment. TC Transcontinental pledged, by 2025, for 100% of its plastic packaging to be reusable, recyclable or compostable.   
• Commitment to take a leadership role in the creation of a circular economy for plastic, in order to ensure the transition into a model where plastic is better managed from sourcing to end-of-life. In this context, as of this fall, the Publisac bag will be replaced by a bag made of 100% recycled plastic.

⁽¹⁾ Please refer to the section entitled "Non-IFRS Financial Measures" in this press release for a definition of these measures.

Montréal, June 6, 2019 - Transcontinental Inc. (TSX: TCL.A TCL.B) announces its results for the second quarter of fiscal 2019, which ended April 28, 2019.

"We have just proudly marked the first anniversary of our transformational acquisition of Coveris Americas and we are very satisfied with it, said François Olivier, President and Chief Executive Officer of TC Transcontinental. This acquisition is performing in line with our plan and has seen a gradual increase in its profit margins from quarter to quarter over the past year. In the second quarter of 2019, Coveris Americas contributed significantly to our revenues and profitability in the Packaging Sector. We remain focused on improving our profit margins, which should continue to progressively increase in the coming quarters, notably by realizing our synergies.

"On the printing side, our results continued to reflect more moderate performance in some of our verticals, including our retailer-related service offering. As we have always done, we are working to align our printing network's capacity and our costs with our business volume. Among other things, during the quarter, we installed state-of-the-art presses in our Canadian platform and we recently announced the closure of a plant. These measures should enable us to improve our cost structure and positively contribute to this sector's profitability.

"In summary, we expect to continue generating significant cash flows, which will first be allocated to reducing our indebtedness, while continuing to execute our business plan."

Financial Highlights

 

2019 Second Quarter Results

Revenues increased by $232.7 million, or 43.5%, from $534.7 million in the second quarter of 2018 to $767.4 million in the corresponding period in 2019. Excluding the favourable effect of the accelerated recognition of deferred revenues of $62.3 million recorded in the second quarter of 2018 resulting from the agreement signed with Hearst, adjusted revenues increased by 62.4%, from $472.4 million in the second quarter of 2018 to $767.4 million in the corresponding period of 2019. This increase is largely attributable to the transformational acquisition of Coveris Americas, which contributed $318.4 million to revenues. It was partially offset by the $12.2 million unfavourable effect of the sale to Hearst of our newspaper printing operations and the unfavourable effect of disposals of local and regional newspapers in Québec. It was also mitigated by the organic decline in Printing Sector revenues, which is mostly due to a decrease in printed flyer volume related to two major customers.

Operating earnings decreased by $55.9 million, or 56.5%, from $99.0 million in the second quarter of 2018 to $43.1 million in the second quarter of 2019. This decrease is mainly due to the accelerated recognition of deferred revenues, net of accelerated depreciation, of $46.6 million recorded in the second quarter of 2018 resulting from the agreement signed with Hearst. Adjusted operating earnings increased by $13.3 million, or 18.9%, from $70.3 million to $83.6 million. This increase in mainly attributable to the contribution from the acquisition of Coveris Americas, partially offset by the above-mentioned organic decline in the Printing Sector.

Net earnings decreased by $46.6 million, or 67.6%, from $68.9 million in the second quarter of 2018 to $22.3 million in the second quarter of 2019. This decrease is mainly due to the accelerated recognition of deferred revenues, net of accelerated depreciation and related income taxes, of $34.4 million recorded in the second quarter of 2018 resulting from the agreement signed with Hearst, as well as higher financial expenses in the second quarter of 2019 compared to the corresponding period in 2018. These items were partially offset by a decrease in income taxes. On a per share basis, net earnings went from $0.89 to $0.26 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 in May 2018. Adjusted net earnings increased by $4.1 million, or 8.5%, from $48.5 million in the second quarter of 2018 to $52.6 million in the second quarter of 2019. This increase is due to higher adjusted operating earnings combined with a decrease in adjusted income taxes, partially offset by higher financial expenses. On a per share basis, adjusted net earnings went from $0.63 to $0.60, mostly due to the effect of the issuance of 10.8 million Class A Subordinate Voting Shares of the Corporation, partially offset by the increase in adjusted net earnings.

2019 First Six Months Results

Revenues increased by $482.6 million, or 46.6%, from $1,036.4 million in the first six months of 2018 to $1,519.0 million in the corresponding period in 2019. Excluding the favourable effect of the accelerated recognition of deferred revenues of $102.1 million recorded in the first six months of 2018 resulting from the agreement signed with Hearst, adjusted revenues increased by 62.6%, from $934.3 million in the first six months of 2018 to $1,519.0 million in the corresponding period in 2019. This increase is essentially attributable to the transformational acquisition of Coveris Americas, which contributed $624.3 million to revenues. It was mitigated by the effect of the sale of our California newspaper printing operations and the disposal of local and regional newspapers in Québec, as well as by the organic decline in the Printing Sector in the first six months of 2019, which is mostly due to a decrease in printed flyer volume related to two major customers.

Operating earnings decreased by $125.9 million, or 56.6%, from $222.6 million in the first six months of 2018 to $96.7 million in the corresponding period in 2019. This decrease is mainly due to the accelerated recognition of deferred revenues, net of accelerated depreciation, of $80.1 million recorded in the first six months of 2018 resulting from the agreement signed with Hearst as well as the increase in restructuring and other costs (gains). Adjusted operating earnings increased by $19.6 million, or 13.9%, from $140.7 million to $160.3 million. This increase is mostly attributable to the contribution from the acquisition of Coveris Americas, partially offset by the above-mentioned organic decline in the Printing Sector.

Net earnings decreased by $76.7 million, or 60.3%, from $127.1 million in the first six months of 2018 to $50.4 million in the corresponding period in 2019. This decrease is due to the previously explained decline in operating earnings as well as higher financial expenses in the first six months of 2019 compared to the corresponding period in 2018, and was partially offset by a decrease in income taxes. On a per share basis, net earnings went from $1.64 to $0.58 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 in May 2018. Adjusted net earnings decreased by $2.2 million, or 2.2%, from $100.3 million in the first six months of 2018 to $98.1 million in the corresponding period in 2019, mostly as a result of higher financial expenses, which more than offset the increase in adjusted operating earnings. On a per share basis, adjusted net earnings went from $1.30 to $1.12 as a result of the issuance of 10.8 million Class A Subordinated Voting Shares of the Corporation and the decrease in adjusted net earnings.

For more detailed financial information, please see the Management’s Discussion and Analysis for the second quarter ended April 28, 2019 as well as the financial statements in the “Investors” section of our website at www.tc.tc

Outlook

In our Packaging Sector, May 1, 2019 marked the first anniversary of the acquisition of Coveris Americas. Since then, many contracts with major customers have been renewed, bringing stability and enabling our well-established sales force to focus on growth. However, we expect revenues will be slightly lower in the second half of fiscal 2019 as a result of a reduction in volume in one of our segments. Manufacturing efficiencies, combined with the effect of synergies, should enable us to achieve our profitability objectives and will contribute to gradually improving our profit margins over the coming quarters.

In our Printing Sector, we expect that the current trends with respect to our service offering to Canadian retailers will continue. However, our in-store marketing products and book printing offerings should continue to grow. In all the other printing verticals, we expect that our revenues will be affected by the same trends observed in recent quarters, with the exception of our newspaper printing offering which will no longer be impacted by the effect of the end of the recognition of deferred revenues related to the printing contract with Hearst. Lastly, to limit the impact on profitability, we will continue to align our printing platform's capacity and our costs with our business volume. In addition, we expect that our operational efficiency initiatives already under way will have a positive impact on our profit margins in the second half of fiscal 2019.

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

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 unaudited condensed interim consolidated financial statements for the second quarter ended April 28, 2019.

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 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 July 17, 2019 to shareholders of record at the close of business on July 2, 2019.

Conference Call

Upon releasing its 2019 second 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 and social environment as well as regulatory and legislative changes, 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 June 6, 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 June 6, 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

Yan Lapointe
Director, Investor Relations
TC Transcontinental
Telephone: 514-954-3574
yan.lapointe@tc.tc
www.tc.tc