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Press release from CNW Group

Transcontinental Inc. generates organic revenue and profit growth in 2011 and is well positioned for the future

Thursday, December 08, 2011

Transcontinental Inc. generates organic revenue and profit growth in 2011 and is well positioned for the future12:28 EST Thursday, December 08, 2011Highlights (in millions of dollars, except per share data)20112010%Q4- 2011Q4- 2010%Revenues$2,043.6$2,028.31%$537.5$556.4(3%)Adjusted operating income (1)252.7249.91%86.388.9(3%)Adjusted net income applicable to participating shares (2)   161.7155.94%60.262.7(4%)Per share2.001.934%0.740.78(5%)Net income applicable to participating shares77.8166.6(53%)8.044.5(82%)Per share0.962.06(53%)0.100.55(82%)Notes 1, 2 and 3: please refer to the table "Reconciliation of Non-GAAP financial measures" in this press release.Adjusted net income applicable to participating shares increased 4%, from $155.9 million to $161.7 million.The decrease in net income applicable to participating shares is primarily due to two non-cash and non-operational items.Improved on our already strong investment grade financial position by further reducing our debt and optimizing our debt portfolio. As at October 31, 2011, our adjusted net indebtedness ratio(3) was 1.4x as compared to 1.9x for the same time last year.Increased our dividends on participating shares twice in fiscal 2011. It now stands at $0.54 per share on an annual basis.Developed our new digital and interactive business by acquiring Vortxt Interactive and launching an online auction site, BidGo.ca and a group buying site, Themegacatch.com. Reached close to $200 million in digital and interactive revenues in 2011.Announced the acquisition of Quad/Graphics Canada, Inc. which is subject to the approval of the Competition Bureau. This transaction is expected to generate net incremental EBITDA of at least $40 million over the 12 to 24 months following the closing.Started printing our new 18 year contract with The Globe and Mail on our new hybrid presses.MONTREAL, Dec. 8, 2011 /CNW Telbec/ - Transcontinental Inc. (TSX: TCL.A TCL.B TCL.PR.D) increased its revenues by 1%, from $2,028.3 million to $2,043.6 million, driven primarily by the Printing sector as a result of numerous new contracts, most notably from the expanded relationship with The Globe and Mail, and to a lesser extent by increased volume in our distribution and community newspaper publishing activities. This growth was mitigated by lower volume from the printing of magazines, books and catalogues and marketing products as well as educational book publishing activities. Excluding acquisitions, divestitures and closures, the impact of the exchange rate and the paper component variance, organic revenue growth was slightly positive and was generated in all three operating sectors.For this same period, adjusted operating income increased 1%, from $249.9 million to $252.7 million, driven primarily by the Printing sector through the contribution of new contracts coupled with the synergies associated with the use of our most productive assets and continued efficiency improvement initiatives. This growth was partially offset by continued strategic investments in the Media and Interactive sectors. Excluding acquisitions, divestitures and closures and the impact of the exchange rate, we generated close to 5% of organic profit growth."I am very proud of our 2011 results as we managed to grow both our revenues and profit in an industry that is undergoing a profound transformation. This past year alone we aligned our business portfolio with our strategy by making strategic acquisitions, divesting non-core businesses and consolidating our operations. We also signed new contracts and launched new products and services to develop both our traditional and new digital offering. In fact, we have now built a business of close to $200 million in digital and interactive solutions. In addition, we laid the groundwork to accelerate our development by adapting our go-to-market strategy, through the integration of our Media and Interactive sectors, by launching a new brand and positioning and by improving our financial position significantly. Given all this, we are very well positioned to be a Canadian leader in marketing activation, helping our customers attract, reach and retain their target consumers," said François Olivier, President and Chief Executive Officer.Net income applicable to participating shares                 (in millions of dollars)Revenues% Adjusted operating income% Net income applicableto participating shares%  Results - For fiscal 2010$2,028.3    $249.9    $166.6     Acquisitions/Divestitures/Closures 0.9 0.0% (2.1) (0.8)% (1.6) (1.0)% Existing operations                 Paper effect 19.3 1.0% (1.8) (0.7)% (1.4) (0.8)%  Exchange rates effect (11.0) (0.5)% (5.0) (2.0)% (4.0) (2.4)%  Organic growth  6.1 0.3% 11.7 4.7% 12.8 7.7% Discontinued operations   -   -%   -   -% (50.6) (30.4)% Impairment of assets, restructuring costs impairment of goodwill and intangible assets and unusual adjustments to income taxes - -% - -% (39.8) (23.9)% Expenses related to debt prepayment   -   -%   -   -% (4.2) (2.5)% Results - For fiscal 2011$2,043.6 0.8%$252.7 1.1 %$77.8 (53.3) %Net income applicable to participating shares decreased 53%, from $166.6 million, or $2.06 per share, to $77.8 million, or $0.96 per share. This decrease is mainly attributable to two non-cash and non-operational items. The first item is an impairment of goodwill and intangible assets of $52.2 million in 2011 as compared to only $12.5 million in 2010. Of the total amount in 2011, $31.0 million was related to a goodwill impairment primarily linked to one-to-one marketing activities in the Interactive sector and $21.2 million was related to intangible assets, mainly in the Media sector, linked to trade names of our newspaper publishing assets in the Atlantic provinces and Saskatchewan.  The second item is a significant negative variance related to discontinued operations due to the double effect of a net gain of $29.4 million in 2010, on the disposal of our direct mail operations in the U.S., compared with a net loss of $21.2 million in 2011, on the disposal of our Mexican operations, mainly linked to an accumulated foreign exchange loss. The net difference of $50.6 million is non-cash and non-operational. Excluding unusual items and discontinued operations, adjusted net income applicable to participating shares increased 4%, from $155.9 million, or $1.93 per share, to $161.7 million, or $2.00 per share.Fourth quarterTranscontinental's revenues decreased 3%, from $556.4 million to $537.5 million. This decrease was primarily due to the non-recurring revenue from the printing contract for the Canadian Census last year. Adjusted operating income decreased 3%, from $88.9 million to $86.3 million. This decrease was primarily due to the non-recurrence of the Census contract as well as continued strategic investments in the Media and Interactive sectors. Net income applicable to participating shares decreased 82%, from $44.5 million, or $0.55 per share, to $8.0 million, or $0.10 per share. This decrease is mainly due to an impairment of goodwill and intangible assets of $52.2 million, as explained above, which is non-cash and non-operational. Excluding unusual items and discontinued operations, adjusted net income applicable to participating shares decreased 4%, from $62.7 million, or $0.78 per share, to $60.2 million, or $0.74 per share.Other Financial Highlights For the year, free cash flow increased significantly as capital expenditures decreased, from $125.0 million to $47.4 million.In fiscal 2011, Transcontinental optimized its debt portfolio. First, it set up a new two-year $200 million securitization program with a Canadian bank, which is currently unused. Second, it repaid more expensive debt ($100 million term credit facility with Caisse de dépôt et placement du Québec and its five-year term loan of $50 million with SGF Rexfor Inc.) by drawing on its line of credit, which boasts a much lower interest cost.On December 21, 2010, Standard & Poor's raised Transcontinental's credit rating from BBB- (stable) to BBB (stable) reflecting the continued improvement in Transcontinental's financial position and prospects.As at October 31, 2011, the adjusted net indebtedness ratio(3) was 1.4x, as compared to 1.9x as at October 31, 2010. Over the next year, it should continue to improve given the expected increase in cash flow generation and a level of capital expenditures at around $75 million.For more detailed financial information, please see Management's Discussion and Analysis for the fiscal year ended October 31, 2011 and the complete financial statements on our website at www.tc.tc, under "Investors."Operating Highlights for Fiscal 2011Announced the indirect acquisition of all the shares of Quad/Graphics Canada, Inc. This transaction is subject to approval of the Competition Bureau. The Corporation expects this transaction to close at the beginning of 2012. We also sold our Mexican operations (revenues of C$67 million in 2010) and our black and white book printing business destined for U.S. export (revenues of C$25 million in 2010) to Quad/Graphics. This exchange of assets is expected to generate at least $40 million in net incremental EBITDA for Transcontinental, over 12 to 24 months following closing of the Canadian transaction.Adjusted our go-to-market strategy by combining the Interactive and Media sectors on November 1, 2011. This reorganization will make it easier to market our products and services and emphasize our offer on the various communication platforms, while continuing to deploy our other media and printing products.Launched a new brand and positioning to better reflect our evolution into a leading player in the new marketing communications landscape: TC Transcontinental, a marketing activation company. The new brand better reflects the company's comprehensive and integrated marketing communications service offering including print, media, digital, interactive and mobile.Consolidated five printing plants by transferring the volume to larger plants which have benefited from investments in the recent years.Continued to grow our newspaper publishing operations in Quebec by acquiring the publishing assets of Groupe Le Canada Français, Avantage Consommateurs de l'Est du Québec inc., Journal Nouvelles Hebdo as well as launching several newspapers.Launched new services for our small and medium-sized business customers in local communities including Search Engine Marketing (SEM), web site design, online auctions through BidGo.ca and a group buying site under the brand Themegacatch.com.Expanded our digital advertising representation by signing numerous deals which have led us to triple our digital network audience. We are now reaching over 13 million unique monthly visitors per month in Canada through more than 1,000 websites, bringing our global reach to almost 1 in 2 Canadian Internet users.Acquired Vortxt Interactive, a leading provider of integrated mobile solutions located in Toronto.Concluded a four-year agreement with Canadian Tire, which will add about $30 to $40 million in incremental revenues on an annual basis, starting in January 2012. This new agreement makes Transcontinental Canadian Tire's leading provider of marketing solutions across Canada.Launched our second Sustainability Report, based on the Global Reporting Initiative (GRI). Transcontinental Inc. was also ranked by the independent Canadian media corporation Corporate Knights as one of the Best 50 Corporate Citizens in 2011 for the fifth consecutive year and was included in the Maclean's/Jantzi-Sustainalytics ranking of the 50 most socially responsible corporations in Canada, for the third year in a row.Nominated Isabelle Marcoux as Chair of the Board, starting February 16, 2012, following the decision by the founder, Mr. Rémi Marcoux, to officially leave his position as Executive Chair of the Board at the next shareholders' meeting. Mr. Marcoux will, however, remain a member of the Board.Elected two new members to the Corporation's Board of Directors, Ms. Nathalie Marcoux, Vice President, Finance of Capinabel Inc., and Ms. Anna Martini, F.C.A., President of Groupe Dynamite Inc.Appointed Katya Laviolette as Corporate Vice President, Human Resources and Nelson Gentiletti as Chief Financial and Development Officer.Reconciliation of Non-GAAP Financial MeasuresFinancial data have been prepared in conformity with Canadian Generally Accepted Accounting Principles (GAAP). However, certain measures used in this press release do not have any standardized meaning under GAAP and could be calculated differently by other companies. The Corporation believes that certain non-GAAP financial measures, when presented in conjunction with comparable GAAP financial measures, are useful to investors and other readers because that information is an appropriate measure for evaluating the Corporation's operating performance. Internally, the Corporation uses this non-GAAP financial information as an indicator of business performance, and evaluates management's effectiveness with specific reference to these indicators. These measures should be considered in addition to, not as a substitute for or superior to, measures of financial performance prepared in accordance with GAAP.The following table reconciles GAAP financial measures to non-GAAP financial measures.Reconciliation of Non-GAAP financial measures(unaudited)  Three months ended October 31 For fiscal years ended October 31(in millions of dollars, except per share amounts) 2011  2010  2011  2010Net income applicable to participating shares$8.0 $44.5 $77.8 $166.6Dividends on preferred shares 1.7  1.7  6.8  6.8Net loss (income) from discontinued operations (after tax) 1.2  1.1  21.2  (29.4)Non-controlling interest 0.1  0.6  0.9  0.9Income taxes 5.0  7.3  30.3  34.1Discount on sale of accounts receivable   -    -    -  0.9Financial expenses 9.9  11.7  39.3  42.6Expenses related to long-term debt prepayment   -    -  5.8    -Impairment of goodwill and intangible assets 52.2  12.5  52.2  12.5Impairment of assets and restructuring costs 8.2  9.5  18.4  14.9Adjusted operating income $86.3 $88.9 $252.7 $249.9Amortization 30.4  29.9  120.3  123.3Adjusted operating income before amortization$116.7 $118.8 $373.0 $373.2            Net income applicable to participating shares$8.0 $44.5 $77.8 $166.6Net loss (income) from discontinued operations (after tax) 1.2  1.1  21.2  (29.4)Unusual adjustments to income taxes   -    -    -  (2.4)Expenses related to long-term debt prepayment (after tax)   -    -  4.2    -Impairment of goodwill and intangible assets (after tax) 45.1  10.4  45.1  10,4Impairment of assets and restructuring costs (after tax) 5.9  6.7  13.4  10.7Adjusted net income applicable to participating shares$60.2 $62.7 $161.7 $155.9Average number of participating shares outstanding 81.0  80.9  81.0  80.8Adjusted net income applicable to participating shares per share$0.74 $0.78 $2.00 $1.93            Cash flow related to continuing operations$118.7 $43.7 $304.7 $156.0Changes in non-cash operating items 15.0  (68.1)  (6.3)  (155.1)Cash flow from continuing operations before changes in non-cash operating items$103.7 $111.8 $311.0 $311.1            Long-term debt      $292.5 $712.9Current portion of long-term debt       271.9  17.8Cash and cash equivalents       (75.0)  (31.9)Net indebtedness      $489.4 $698.8Adjusted operating income before amortization      $373.0 $373.2Net indebtedness ratio       1.31x  1.87x            (3) Adjusted net indebtedness ratio excludes the amount to be paid to Quad/Graphics at the closing of the indirect acquisition of Quad/Graphics Canada, Inc., which is subject to the approval of the Competition Bureau.DividendAt its December 8, 2011 meeting, the Corporation's Board of Directors declared a quarterly dividend of $0.135 per Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on January 20, 2012 to participating shareholders of record at the close of business on January 6, 2012. On an annual basis, this represents a dividend of $0.54 per share. Furthermore, at the same meeting, the Board also declared a quarterly dividend of $0.4242 per share on cumulative 5-year rate reset first preferred shares, series D. This dividend is payable on January 16, 2012. On an annual basis, this represents a dividend of $1.6875 per preferred share.Additional InformationUpon releasing its fiscal 2011 results, Transcontinental will hold a conference call for the financial community today at 4:15 p.m. Media may hear the call in listen-only mode or tune in to the simultaneous audio broadcast on the Corporation's Web site, which will then be archived for 30 days. For media requests for information or interviews, please contact Nancy Bouffard, Director, Internal and External Communications of TC Transcontinental, at 514 954-2809.ProfileTC Transcontinental creates marketing products and services that allow businesses to attract, reach and retain their target customers. The Corporation is the largest printer in Canada and the fourth-largest in North America. As the leading publisher of consumer magazines and French-language educational resources, and of community newspapers in Quebec and the Atlantic provinces, it is also one of Canada's top media groups. TC Transcontinental is also the leading door-to-door distributor of advertising material in Canada through its celebrated Publisac network in Quebec and Targeo in the rest of Canada. Thanks to a wide digital network of more than 1,000 websites, the Corporation reaches over 13 million unique visitors per month in Canada. TC Transcontinental also offers interactive marketing products and services that use new communication platforms supported by marketing strategy and planning services, database analytics, premedia, e-flyers, email marketing, custom communications and mobile solutions.Transcontinental Inc. (TSX: TCL.A, TCL.B, TCL.PR.D), known by the brands TC Transcontinental, TC Media and TC Transcontinental Printing, has approximately 10,000 employees in Canada and the United States, and reported revenues of C$2.0 billion in 2011. For more information about the corporation, please visit www.tc.tcForward-looking StatementsThis press release contains certain forward-looking statements concerning the future performance of the Corporation. Such statements, based on the current expectations of management, inherently involve numerous risks and uncertainties, known and unknown. We caution that all forward-looking information is inherently uncertain and actual results may differ materially from the assumptions, estimates or expectations reflected or contained in the forward-looking information, and that actual future performance will be affected by a number of factors, many of which are beyond the Corporation's control, including, but not limited to, the economic situation, structural changes in its industries, exchange rate, availability of capital, energy costs, increased competition, as well as the Corporation's capacity to engage in strategic transactions and integrate acquisitions into its activities. The risks, uncertainties and other factors that could influence actual results are described in the Management's Discussion and Analysis and Annual Information Form.The forward-looking information in this release is based on current expectations and information available as at December 8, 2011. The Corporation's management disclaims any intention or obligation to update or revise any forward-looking statements unless otherwise required by the Securities Authorities.CONSOLIDATED STATEMENTS OF INCOMEFor the years ended October 31 (in millions of dollars, except per share data)    2011 2010       Revenues $2,043.6$2,028.3Operating costs 1,441.7 1,420.6Selling, general and administrative expenses 228.9 234.5       Operating income before amortization, impairment of assets, restructuring costsand impairment of goodwill and intangible assets 373.0 373.2Amortization 120.3 123.3Impairment of assets and restructuring costs 18.4 14.9Impairment of goodwill and intangible assets 52.2 12.5       Operating income 182.1 222.5Financial expenses 39.3 42.6Expenses related to long-term debt prepayments 5.8 -Discount on sale of accounts receivable - 0.9       Income before income taxes and non-controlling interest 137.0 179.0Income taxes 30.3 34.1Non-controlling interest 0.9 0.9       Net income from continuing operations 105.8 144.0Net income (loss) from discontinued operations (21.2) 29.4Net income 84.6 173.4Dividends on preferred shares, net of related income taxes 6.8 6.8Net income applicable to participating shares$77.8$166.6       Net income (loss) per participating share - basic and diluted     Continuing operations$1.22$1.70 Discontinued operations (0.26) 0.36 $0.96$2.06       Weighted average number of participating shares outstanding - basic (in millions) 81.0 80.8       Weighted average number of participating shares outstanding - diluted (in millions) 81.1 80.9              CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFor the years ended October 31 (in millions of dollars)    2011 2010       Net income$84.6$173.4       Other comprehensive income (loss):           Net change in fair value of derivatives designated as cash flow hedges, net of income taxesof $1.5 million for the year ended October 31, 2011 ($(4.0) million for the year ended October 31, 2010) 3.8 (13.7)      Reclassification adjustments for net change in fair value of derivatives designated as cash flow hedgesin prior periods, transferred to net income in the current period, net of income taxes of $(2.0) millionfor the year ended October 31, 2011 ($1.8 million for the year ended October 31, 2010) (5.6) 8.5Net change in fair value of derivatives designated as cash flow hedges (1.8) (5.2)      -Reclassification of a realized foreign exchange loss to net income of discontinued operations,related to the reduction of net investment in self-sustaining foreign operations 50.5 -Net losses on translation of financial statements of self-sustaining foreign operations (5.7) (4.0)Other comprehensive income (loss) 43.0 (9.2)Comprehensive income$127.6$164.2              CONSOLIDATED STATEMENTS OF RETAINED EARNINGSFor the years ended October 31 (in millions of dollars)    2011 2010       Balance, beginning of year$784.0$645.9Net income 84.6 173.4    868.6 819.3Dividends on participating shares (39.7) (28.3)Dividends on preferred shares (6.8) (7.0)Balance, end of year$822.1$784.0              CONSOLIDATED BALANCE SHEETSAs at October 31 (in millions of dollars)    2011 2010       Current assets     Cash and cash equivalents$75.0$31.9 Accounts receivable 436.3 440.6 Income taxes receivable 14.7 19.5 Inventories 80.2 77.6 Prepaid expenses and other current assets 21.6 19.3 Future income taxes 16.8 16.6 Assets from discontinued operations - 27.5  644.6 633.0       Property, plant and equipment 787.1 871.6Goodwill 682.5 678.1Intangible assets 150.8 179.1Future income taxes 144.9 145.3Other assets 43.7 39.2Assets from discontinued operations -  48.4   $2,453.6$2,594.7       Current liabilities     Accounts payable and accrued liabilities$303.7$345.4 Income taxes payable 33.5 29.0 Deferred subscription revenues and deposits 32.5 38.4 Future income taxes 2.0 2.5 Current portion of long-term debt 271.9 17.8 Liabilities from discontinued operations - 12.8  643.6 445.9       Long-term debt 292.5 712.9Future income taxes 140.5 137.4Other liabilities 47.2 50.0Liabilities from discontinued operations - 0.7  1,123.8 1,346.9       Non-controlling interest 0.8 0.8       Commitments, guarantees and contingent liabilities           Shareholders' equity     Share capital 478.8 478.6 Contributed surplus 14.4 13.7       Retained earnings 822.1 784.0 Accumulated other comprehensive income (loss) 13.7 (29.3)  835.8 754.7  1,329.0 1,247.0 $2,453.6$2,594.7              CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended October 31 (in millions of dollars)    2011 2010       Operating activities     Net income$84.6$173.4 Less: Net income (loss) from discontinued operations (21.2) 29.4 Net income from continuing operations 105.8 144.0       Items not affecting cash and cash equivalents      Amortization 147.5 147.9  Impairment of assets 3.9 1.7  Impairment of goodwill and intangible assets 52.2 12.5  Net gains on disposal of assets (3.8) (8.2)  Future income taxes (1.1) 10.4  Stock option compensation 0.7 0.8  Other 5.8 2.0  Cash flow from operating activities before changes in non-cash operating items 311.0 311.1  Changes in non-cash operating items (6.3) (155.1)  Cash flow related to operating activities of continuing operations 304.7 156.0  Cash flow related to operating activities of discontinued operations 3.4 8.2    308.1 164.2       Investing activities     Business acquisitions (35.8) (14.0) Acquisitions of property, plant and equipment (47.4) (125.0) Disposals of property, plant and equipment 2.6 10.9 Increase in intangible assets and other assets (21.1) (24.1) Cash flow related to investing activities of continuing operations (101.7) (152.2) Cash flow related to investing activities of discontinued operations 49.0 90.8    (52.7) (61.4)       Financing activities     Increase in long-term debt - 40.5 Reimbursement of long-term debt (168.0) (10.1) Increase (decrease) in revolving term credit facility 4.5 (95.4) Dividends on participating shares (39.7) (28.3) Dividends on preferred shares (6.8) (7.0) Issuance of participating shares 0.2 2.1 Bond forward contract (6.0) - Other (1.2) (0.2) Cash flow related to financing activities of continuing operations (217.0) (98.4) Cash flow related to financing activities of discontinued operations - (1.3)    (217.0) (99.7)       Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies 0.3 (1.5)       Increase in cash and cash equivalents 38.7 1.6Cash and cash equivalents at beginning of year 36.3 34.7Cash and cash equivalents at end of year$75.0$36.3       Cash and cash equivalents include an amount from discontinued operations of $4.4 million as at October 31, 2010.    For further information: Media Nancy Bouffard Director, Internal and External Communications TC Transcontinental Telephone : 514 954-2809 nancy.bouffard@tc.tc www.tc.tc     Financial Community Jennifer F. McCaughey Senior Director, Investor Relations and Financial Communications TC Transcontinental Telephone : 514 954-2821 jennifer.mccaughey@tc.tc www.tc.tc