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Press release from Marketwire

Transcontinental Inc. Completes Two Acquisitions and Increases its Profitability in the Second Quarter

Thursday, June 05, 2014

Transcontinental Inc. Completes Two Acquisitions and Increases its Profitability in the Second Quarter

10:04 EDT Thursday, June 05, 2014

MONTREAL, QUEBEC--(Marketwired - June 5, 2014) - (TSX:TCL.A)(TSX:TCL.B)(TSX:TCL.PR.D)

(in millions of dollars, except per share data) Q2-14 Q2-13 (1) % YTD 2014 YTD 2013 (1) %
Revenues 498.2 517.8 (3.8 ) 997.5 1,043.4 (4.4 )
Adjusted operating earnings before amortization (Adjusted EBITDA) 82.8 80.4 3.0 151.4 149.8 1.1
Adjusted operating earnings (Adjusted EBIT) 58.5 54.2 7.9 102.0 97.7 4.4
Adjusted net earnings applicable to participating shares 36.8 32.6 12.9 63.2 59.0 7.1
Per share 0.47 0.42 11.9 0.81 0.76 6.6
Net earnings applicable to participating shares 34.7 25.3 37.2 51.9 41.0 26.6
Per share 0.45 0.32 40.6 0.67 0.52 28.8
Please refer to the table "Reconciliation of Non-IFRS financial measures" in this press release.
(1) 2013 figures have been restated to take into account the effects of amended IAS 19 - Employee Benefits, IFRS 11 - Joint Arrangements and other elements.

Highlights

  • Revenues decreased 3.8%, primarily due to the soft advertising market.
  • Adjusted net earnings applicable to participating shares grew 12.9%, from $32.6 million to $36.8 million. On a per share basis, they rose from $0.42 to $0.47.
  • Completed the acquisition of the assets of Capri Packaging, a producer of flexible packaging.
  • Completed the acquisition of the weekly newspapers owned by Sun Media Corporation in Quebec and their related Web properties. Under the terms of the agreement with the Competition Bureau, the Corporation must put some weekly newspapers up for sale.
  • Closed a private financing agreement of $250 million in senior unsecured notes.
  • Signed a multi-year agreement with Postmedia Network Inc. to print The Gazette newspaper.

Transcontinental Inc.'s (TSX:TCL.A)(TSX:TCL.B)(TSX:TCL.PR.D) revenues decreased by 3.8% in the second quarter, from $517.8 million to $498.2 million, primarily due to the soft advertising market, which continues to influence our marketing products printing as well as our newspaper and magazine publishing operations. This decrease was partially offset by the sustained performance of our flyer printing operations and by new contracts in both operating sectors.

Adjusted operating earnings rose from $54.2 million to $58.5 million. This performance is due to the company-wide optimization of our cost structure and our highly efficient printing platform. It was partially offset by the soft advertising market as mentioned above. Net earnings applicable to participating shares increased from $25.3 million, or $0.32 per share, to $34.7 million, or $0.45 per share. This improvement is due to lower restructuring and other costs, an increase in adjusted operating earnings and lower financial expenses, partially offset by an increase in income taxes. Adjusted net earnings applicable to participating shares grew 12.9%, from $32.6 million, or $0.42 per share, to $36.8 million, or $0.47 per share.

"We are proud to have completed two major transactions that position TC Transcontinental strategically for the future. With the acquisition of the Capri Packaging assets, we have taken a first step into the flexible packaging market, which is a new promising growth area for the Corporation. In addition, the acquisition of the Sun Media weekly newspapers in Quebec strengthens our assets in this market, while ensuring our ability to evolve our local solutions offering in Quebec. Furthermore, our second quarter results were satisfactory. Despite the pressure we are experiencing in the advertising market, the increase in our profitability demonstrates the effectiveness of our strategy, namely strengthening existing assets and developing new revenue sources," said François Olivier, President and Chief Executive Officer.

"For coming quarters, our excellent financial position combined with our ability to generate significant cash flows gives us the flexibility we need to integrate our recent acquisitions, continue our transformation and invest in the future of the Corporation," Mr. Olivier added.

Supplementary Information

  • On April 10, 2014, the Corporation announced the renewal of its normal course issuer bid from April 15, 2014 to April 14, 2015.

  • On May 3, 2014, the Corporation completed the acquisition of the assets of Capri Packaging, a producer of flexible packaging, operating two facilities located in Clinton, Missouri. The acquisition will add about US$72 million to TC Transcontinental's revenues. As part of the transaction, the seller, Schreiber Foods, Inc. has signed a 10-year agreement to secure Capri Packaging as a strategic supplier of flexible packaging, which represents about 75% of Capri's total revenues.

  • On May 5, 2014, TC Transcontinental Printing signed a multi-year agreement with Postmedia Network Inc. to print The Gazette, published primarily for the Montreal market. This agreement builds on our recent announcement to print the Vancouver Sun and the Calgary Herald. The contract with Postmedia Network will take effect in August 2014.

  • On May 8, 2014, the Corporation completed a private financing agreement for an amount of $250 million of 3.897% senior unsecured notes due in 2019. Transcontinental Inc. intends to use the net proceeds to repay outstanding indebtedness under its revolving credit facility and for general corporate purposes.

  • On June 1, 2014, Transcontinental Inc. completed the acquisition of the weekly newspapers owned by Sun Media Corporation in Quebec and their related Web properties. Under the terms of the agreement with the Competition Bureau, the Corporation must put some weekly newspapers up for sale. Despite this requirement, the transaction will add about $20 million to the operating earnings before amortization of Transcontinental Inc. and further advance the local multiplatform offering for businesses and communities.

Highlights of the First Half

In the first half of 2014, TC Transcontinental's revenues decreased 4.4%, from $1,043.4 million to $997.5 million. This decrease stems primarily from the soft advertising market in our two operating sectors. Adjusted operating earnings grew 4.4%, from $97.7 million to $102.0 million, due to the optimization of our cost structure. This increase was partially offset by the factors mentioned above. Net earnings applicable to participating shares rose from $41.0 million, or $0.52 per share, to $51.9 million, or $0.67 per share. This improvement is due to lower financial expenses, a decrease in restructuring and other costs, as well as an increase in adjusted operating earnings, partially offset by an increase in income taxes. Excluding unusual items, adjusted net earnings applicable to participating shares grew 7.1%, from $59.0 million, or $0.76 per share, to $63.2 million, or $0.81 per share.

For more detailed financial information, please see Management's Discussion and Analysis for the second quarter ended April 30 th , 2014 as well as the financial statements in the "Investors" section of our website at www.tc.tc

Outlook

New agreements to print magazines, newspapers and marketing products signed since the start of the fiscal year will reduce the impact of difficult market conditions in these niches. We believe that our printing offering to major retail chains will remain relatively stable and we are continuing to improve our point-of-purchase marketing services. The Printing Sector will also continue to optimize its cost structure and operations in order to maintain its longer-term profitability.

The Media Sector should continue to benefit from cost-structure optimization initiatives and the new flyer-distribution agreements that will help stabilize our operating margin and reduce the impact of difficult conditions in the advertising market. We will also continue to invest in the development and commercialization of new digital products. The acquisition of the Sun Media Corporation weekly papers in Quebec should also enable us to strengthen our media assets and improve our offering in local markets.

The Corporation completed the transaction to acquire the assets of Capri Packaging in order to start a new growth vector in flexible packaging. We have initiated the operational integration process, modifying our organizational structure and creating a packaging division headed by a team of senior executives with outstanding capabilities in manufacturing. The long-term agreement with the seller, Schreiber Foods, Inc., will secure most of the revenues for this division. In the coming months we will be implementing a plan to build the loyalty of our existing customers and attract new ones to ensure our success in this promising niche.

We have secured additional long-term financing to give us the financial flexibility required to pursue our transformation and execute our growth strategy. Given our excellent financial position, we will continue our balanced approach to capital management, which allows us to reduce our debt, pay dividends and invest in our transformation focused on our core competencies. We will also keep on developing internal projects and evaluating strategic acquisitions to maintain our position in our niches, while developing our new packaging growth vector to ensure the long-term success and profitability of the business.

Reconciliation of Non-IFRS Financial Measures

Financial data have 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 more appropriate for evaluating the Corporation's operating performance. Internally, management uses such non-IFRS 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 IFRS.

The following table reconciles IFRS financial measures to non-IFRS financial measures.

Reconciliation of Non-IFRS Financial Measures
(unaudited)
Three months ended April 30 Six months ended April 30
(in millions of dollars, except per share amounts) 2014 2013 (1) 2014 2013 (1)
Net earnings applicable to participating shares $ 34.7 $ 25.3 $ 51.9 $ 41.0
Dividends on preferred shares, net of related taxes 1.7 1.7 3.4 3.4
Non-controlling interests 0.4 0.4 0.1 0.1
Income tax 14.9 10.7 23.6 13.7
Share of earnings in interests in joint ventures, net of related taxes (0.2 ) (0.3 ) (0.5 ) (0.4 )
Net financial expenses 4.0 6.5 8.6 15.2
Impairment of assets 0.1 0.7 0.5 2.8
Restructuring and other costs 2.9 9.2 14.4 21.9
Adjusted operating earnings $ 58.5 $ 54.2 $ 102.0 $ 97.7
Amortization 24.3 26.2 49.4 52.1
Adjusted operating earnings before amortization $ 82.8 $ 80.4 $ 151.4 $ 149.8
Net earnings applicable to participating shares $ 34.7 $ 25.3 $ 51.9 $ 41.0
Impairment of assets (after tax) 0.1 0.6 0.4 2.1
Restructuring and other costs (after tax) 2.0 6.7 10.9 15.9
Adjusted net earnings applicable to participating shares $ 36.8 $ 32.6 $ 63.2 $ 59.0
Weighted Average number of participating shares outstanding 78.0 77.9 78.0 78.0
Adjusted net earnings applicable to participating shares per share $ 0.47 $ 0.42 $ 0.81 $ 0.76
As at As at
April 30, October 31,
2014 2013 (1)
Long-term debt $ 119.7 $ 128.9
Current portion of long-term debt 161.9 218.3
Cash (29.9 ) (26.4 )
Net indebtedness $ 251.7 $ 320.8
Adjusted operating earnings before amortization (last 12 months) $ 340.2 $ 338.6
Net indebtedness ratio 0.74 x 0.95 x
(1) 2013 figures have been restated to take into account the effects of IAS 19 amended - Employee Benefits, IFRS 11 - Joint Arrangements and other elements.

Dividends

Dividend on Participating Shares

The Corporation's Board of Directors declared a quarterly dividend of $0.16 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on July 17, 2014 to shareholders of record at the close of business on June 30, 2014.

Dividend on Preferred shares

The Corporation's Board of Directors declared a quarterly dividend of $0.4207 per share on Cumulative 5-Year Rate Reset First Preferred Shares, Series D. This dividend is payable on July 15, 2014. On an annual basis, this represents a dividend of $1.6875 per preferred share.

Additional Information

Conference Call

Upon releasing its second quarter 2014 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, Corporation Communications of TC Transcontinental, at 514-954-3581.

Profile

Largest printer and a leading provider of media and marketing activation solutions in Canada, TC Transcontinental creates products and services that allow businesses to attract, reach and retain their target customers. The Corporation specializes in print and digital media, the production of magazines, newspapers, books and custom content, mass and personalized marketing, interactive and mobile applications, door-to-door distribution, and also manufactures a range of flexible packaging products in the United States.

Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B)(TSX:TCL.PR.D), including TC Transcontinental, TC Media, TC Transcontinental Printing and TC Transcontinental Packaging, has over 9,000 employees in Canada and the United States, and revenues of C$2.1 billion in 2013. Website 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 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 our packaging products used in the food industry, innovation of our offering and concentration of our 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 31 st , 2013, in the latest Annual Information Form and have been updated in the MD&A for the second quarter ended April 30 th , 2014.

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 June 5, 2014.

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 5, 2014. 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.

CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited
Three months ended Six months ended
April 30 April 30
(in millions of Canadian dollars, except per share data)
2014

2013
Restated

2014

2013
Restated
Revenues $ 498.2 $ 517.8 $ 997.5 $ 1,043.4
Operating expenses 415.4 437.4 846.1 893.6
Restructuring and other costs 2.9 9.2 14.4 21.9
Impairment of assets 0.1 0.7 0.5 2.8
Operating earnings before amortization 79.8 70.5 136.5 125.1
Amortization 24.3 26.2 49.4 52.1
Operating earnings 55.5 44.3 87.1 73.0
Net financial expenses 4.0 6.5 8.6 15.2
Earnings before share of net earnings in interests in joint ventures and income taxes 51.5 37.8 78.5 57.8
Share of net earnings in interests in joint ventures, net of related taxes 0.2 0.3 0.5 0.4
Income taxes 14.9 10.7 23.6 13.7
Net earnings 36.8 27.4 55.4 44.5
Non-controlling interests 0.4 0.4 0.1 0.1
Net earnings attributable to shareholders of the Corporation 36.4 27.0 55.3 44.4
Dividends on preferred shares, net of related taxes 1.7 1.7 3.4 3.4
Net earnings attributable to participating shares $ 34.7 $ 25.3 $ 51.9 $ 41.0
Net earnings per participating share - basic $ 0.45 $ 0.32 $ 0.67 $ 0.52
Net earnings per participating share - diluted $ 0.44 $ 0.32 $ 0.66 $ 0.52
Weighted average number of participating shares outstanding - basic (in millions) 78.0 77.9 78.0 78.0
Weighted average number of participating shares - diluted (in millions) 78.2 77.9 78.2 78.0
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
Three months ended Six months ended
April 30 April 30
(in millions of Canadian dollars)
2014


2013
Restated


2014

2013
Restated

Net earnings $ 36.8 $ 27.4 $ 55.4 $ 44.5
Other comprehensive income (loss)
Items that will be reclassified to net earnings:
Net change related to cash flow hedges
Net change in the fair value of derivatives designated as cash flow hedges 0.8 (1.1 ) 0.2 1.0
Reclassification of the net change in the fair value of derivatives designated as cash flow hedges in prior periods, recognized in net earnings during the period 0.8 1.4 - (0.1 )
Related income taxes 0.3 0.1 0.1 0.3
1.3 0.2 0.1 0.6
Cumulative translation differences
Net unrealized exchange gains (losses) on the translation of the financial statements of foreign operations (0.1 ) 0.6 2.8 0.3
Unrealized exchange gains (losses) on the translation of a debt designated as a hedge of a net investment in foreign operations 0.1 (0.2 ) (2.4 ) (0.6 )
- 0.4 0.4 (0.3 )
Items that will not be reclassified to net earnings:
Changes in actuarial gains and losses in respect of defined benefit plans
Actuarial gains (losses) in respect of defined benefit plans 17.2 (8.6 ) 11.2 3.4
Related income taxes 4.6 (2.2 ) 3.0 0.8
12.6 (6.4 ) 8.2 2.6
Other comprehensive income (loss) 13.9 (5.8 ) 8.7 2.9
Comprehensive income $ 50.7 $ 21.6 $ 64.1 $ 47.4
Attributable to:
Shareholders of the Corporation $ 50.3 $ 21.2 $ 64.0 $ 47.3
Non-controlling interests 0.4 0.4 0.1 0.1
$ 50.7 $ 21.6 $ 64.1 $ 47.4
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Unaudited
(in millions of Canadian dollars)
Attributable to shareholders of the Corporation
Share
capital
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
loss
Total Non-
controlling
interests
Total equity
Balance as at October 31, 2013 (Restated) $ 462.8 $ 2.9 $ 362.5 $ (13.2 ) $ 815.0 $ 0.4 $ 815.4
Net earnings - - 55.3 - 55.3 0.1 55.4
Other comprehensive income - - - 8.7 8.7 - 8.7
Shareholders' contributions and distributions to shareholders
Dividends - - (27.2 ) - (27.2 ) - (27.2 )
Stock-option based compensation - 0.3 - - 0.3 - 0.3
Balance as at April 30, 2014 $ 462.8 $ 3.2 $ 390.6 $ (4.5 ) $ 852.1 $ 0.5 $ 852.6
Balance as at November 1, 2012 $ 467.7 $ 2.5 $ 514.2 $ (84.4 ) $ 900.0 $ 1.4 $ 901.4
Net earnings - - 44.4 - 44.4 0.1 44.5
Other comprehensive income - - - 2.9 2.9 - 2.9
Shareholders' contributions and distributions to shareholders
Participating share redemptions (6.4 ) - (5.2 ) - (11.6 ) - (11.6 )
Dividends - - (103.9 ) - (103.9 ) (1.4 ) (105.3 )
Stock-option based compensation - 0.4 - - 0.4 - 0.4
Balance as at April 30, 2013 (Restated) $ 461.3 $ 2.9 $ 449.5 $ (81.5 ) $ 832.2 $ 0.1 $ 832.3
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited
(in millions of Canadian dollars) As at As at
April 30, October 31,
2014 2013
Restated
Current assets
Cash $ 29.9 $ 26.4
Accounts receivable 381.8 419.2
Income taxes receivable 16.5 12.1
Inventories 80.2 82.0
Prepaid expenses and other current assets 15.1 13.9
523.5 553.6
Property, plant and equipment 577.2 596.0
Intangible assets 191.3 194.1
Goodwill 324.0 324.0
Investments in joint ventures 1.3 0.8
Deferred income taxes 143.6 147.7
Other assets 56.8 34.6
$ 1,817.7 $ 1,850.8
Current liabilities
Accounts payable and accrued liabilities $ 237.8 $ 272.8
Provisions 5.6 10.3
Income taxes payable 11.1 6.3
Deferred revenues and deposits 61.2 55.9
Current portion of long-term debt 161.9 218.3
477.6 563.6
Long-term debt 119.7 128.9
Deferred income taxes 83.0 67.1
Provisions 39.8 40.2
Other liabilities 245.0 235.6
965.1 1,035.4
Equity
Share capital 462.8 462.8
Contributed surplus 3.2 2.9
Retained earnings 390.6 362.5
Accumulated other comprehensive loss (4.5 ) (13.2 )
Attributable to shareholders of the Corporation 852.1 815.0
Non-controlling interests 0.5 0.4
852.6 815.4
$ 1,817.7 $ 1,850.8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three months ended Six months ended
April 30 April 30
(in millions of Canadian dollars)
2014


2013
Restated


2014


2013
Restated

Operating activities
Net earnings $ 36.8 $ 27.4 $ 55.4 $ 44.5
Adjustments to reconcile net earnings and cash flows from operating activities:
Amortization 31.4 32.1 63.4 64.3
Impairment of assets 0.1 0.7 0.5 2.8
Financial expenses on long-term debt 3.8 4.5 8.4 10.4
Net losses (gains) on disposal of assets 0.2 0.1 0.1 (0.1 )
Income taxes 14.9 10.7 23.6 13.7
Stock-option based compensation 0.1 0.2 0.3 0.4
Other (0.8 ) (0.6 ) 0.4 1.5
Cash flows generated by operating activities before changes in non-cash operating items and income taxes paid 86.5 75.1 152.1 137.5
Changes in non-cash operating items (14.7 ) (1.5 ) (13.1 ) 156.8
Income taxes paid (4.1 ) (3.1 ) (1.3 ) (13.9 )
Cash flows from operating activities 67.7 70.5 137.7 280.4
Investing activities
Business combinations - (1.7 ) (1.0 ) (25.0 )
Disposals of subsidiaries 1.5 - 1.5 -
Acquisitions of property, plant and equipment (9.9 ) (9.2 ) (18.7 ) (20.3 )
Disposals of property, plant and equipment 0.1 1.9 0.8 2.2
Increase in intangible assets (4.9 ) (7.8 ) (11.2 ) (12.0 )
Cash flows from investing activities (13.2 ) (16.8 ) (28.6 ) (55.1 )
Financing activities
Reimbursement of long-term debt (16.9 ) (0.6 ) (25.5 ) (81.2 )
Net increase (decrease) in revolving term credit facility (18.0 ) 44.0 (46.0 ) (2.5 )
Financial expenses on long-term debt (4.5 ) (4.8 ) (8.0 ) (11.4 )
Dividends on participating shares (12.5 ) (89.2 ) (23.8 ) (100.5 )
Dividends on preferred shares (1.7 ) (1.7 ) (3.4 ) (3.4 )
Dividends paid to non-controlling interests - - - (1.4 )
Participating share redemptions - - - (12.1 )
Cash flows from financing activities (53.6 ) (52.3 ) (106.7 ) (212.5 )
Effect of exchange rate changes on cash denominated in foreign currencies 0.1 0.1 1.1 -
Net change in cash 1.0 1.5 3.5 12.8
Cash at beginning of period 28.9 24.1 26.4 12.8
Cash at end of period $ 29.9 $ 25.6 $ 29.9 $ 25.6
Non-cash investing and financing activities
Net change in capital asset acquisitions financed by accounts payable $ 1.4 $ 0.2 $ - $ (4.6 )

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Media: Nathalie St-Jean
Senior Advisor, Corporate - Communications
TC Transcontinental
514-954-3581
nathalie.st-jean@tc.tc
www.tc.tc


Financial Community: Jennifer F. McCaughey
Senior Director, Investor Relations
and External Corporate Communications - TC Transcontinental
514-954-2821
jennifer.mccaughey@tc.tc
www.tc.tc

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