Transcontinental Inc. announces its financial results for the first quarter of Fiscal 2017

MONTREAL, QUEBEC–(Marketwired – March 3, 2017) – (TSX:TCL.A)(TSX:TCL.B)

Highlights

  • Revenues increased by $4.7 million, or 0.9%.
  • Operating earnings increased by $10.8 million, or 20.9%. Adjusted operating earnings, which exclude restructuring and other costs (revenues) and impairment of assets, increased by $4.2 million, or 7.4%.
  • Net earnings increased by $5.4 million, or 14.5%. Adjusted net earnings, which exclude restructuring and other costs (revenues) and impairment of assets, net of related taxes, decreased by $0.1 million, or 0.2%.
  • Conclusion of an expanded agreement with Lowe’s Canada which includes the renewal of the agreement with RONA and the addition of the printing of Lowe’s flyers in Canada. This agreement represents revenues of $200 million over five years and includes all services to retailers for all Lowe’s and RONA banners in the country.
  • The Board of Directors approved an 8.1% increase in the dividend per share to $0.80 per year.

Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B) announces its results for the first quarter of Fiscal 2017, which ended January 29, 2017.

“I am proud of our results for the first quarter, which show an increase in our revenues and profitability while we successfully continue our transformation”, said François Olivier, President and Chief Executive Officer of TC Transcontinental. “Our performance confirms the effectiveness of our strategy, which we are executing in a disciplined manner.”

“For the printing division, we are pleased to announce that we have entered into an expanded agreement with Lowe’s Canada. In addition to renewing our agreement for the full range of services offered to RONA, we have expanded our business relationship with Lowe’s, which has entrusted us with the printing of its flyers in Canada. This multi-year agreement, which includes all our retailer-related services for all of the Lowe’s and RONA banners across the country, reflects their support of Canadian suppliers. It is also a mark of confidence in the quality of our services.”

“In the Media Sector, the efficiency measures deployed over the last few quarters, combined with our exit from all our interactive marketing activities, continued to mitigate the impact of lower local newspapers advertising revenues on our profitability.”

“As for our packaging division, we are finalizing the integration of Flexstar Packaging, which is proceeding according to plan. To support our transformation and our growth ambitions in this division, we continue to deploy significant resources to develop our sales force and invest in our manufacturing platform to meet our future needs. Considering our growing sales funnel, we are confident that these initiatives will yield results.”

“With our sound financial position and our significant cash flows, we are well positioned to ensure our sustainable growth and continue to diversify our assets into packaging.”

Financial Highlights

(in millions of dollars, except per share amounts) Q1-2017 Q1-2016 Variation
in %
Revenues $ 503.6 $ 498.9 0.9 %
Operating earnings before depreciation and amortization (EBITDA) 89.0 78.4 13.5
Adjusted operating earnings before depreciation and amortization(Adjusted EBITDA)(1) 87.9 83.9 4.8
Operating earnings (EBIT) 62.4 51.6 20.9
Adjusted operating earnings (Adjusted EBIT) (1) 61.3 57.1 7.4
Net earnings 42.7 37.3 14.5
Net earnings per share 0.55 0.48 14.6
Adjusted net earnings (1) 41.3 41.4 (0.2 )
Adjusted net earnings per share (1) 0.53 0.53
(1) Please refer to the table “Reconciliation of Non-IFRS financial measures” in this press release for adjusted data presented above.

2017 First Quarter Results

Revenues for the first quarter of 2017 went from $498.9 million to $503.6 million, an increase of 0.9%. The contribution from acquisitions, in particular in the packaging division, and the favourable exchange rate effect more than offset the loss of revenues related to disposals and closures in the Media Sector and the decrease in revenues from existing operations. In the printing division, revenues from existing operations declined. This decrease was mitigated by the stable demand from Canadian retailers for printed flyers and door-to-door distribution services as well as the increase in revenues from premedia and in-store marketing services. In addition, the agreement to print the Toronto Star, which started in July 2016, partially offset the negative impact of the sustained decline in advertising spending in several activities as well as the completion of the agreement to print Canada’s census form in 2016. In the packaging division, revenues from existing operations increased slightly compared to the first quarter of 2016. In the Media Sector, the decline in advertising revenues continued to have a negative impact on local newspaper publishing activities.

Adjusted operating earnings went from $57.1 million to $61.3 million in the first quarter of 2017, an increase of 7.4%. Excluding the unfavourable effect of $8.3 million related to stock-based compensation as a result of the significant change in the share price in the first quarter of 2017 compared to the corresponding period in 2016, adjusted operating earnings increased by 21.9%. This increase is attributable to the contribution from acquisitions, the favourable exchange rate effect as well as the increase in adjusted operating earnings from existing operations. This growth in adjusted operating earnings from existing operations is due to the continued cost reduction initiatives throughout the Corporation, partially offset by the lower revenues mentioned above.

Net earnings increased from $37.3 million in the first quarter of 2016 to $42.7 million in the first quarter of 2017. This increase is mainly explained by higher operating earnings, partially offset by the increase in net financial expenses and income taxes. On a per share basis, net earnings increased from $0.48 to $0.55. Excluding restructuring and other costs (revenues) and impairment of assets, net of related income taxes, adjusted net earnings decreased by $0.1 million, or 0.2%, from $41.4 million in the first quarter of 2016 to $41.3 million in the first quarter of 2017. On a per share basis, adjusted net earnings remained stable at $0.53.

For more detailed financial information, please see Management’s Discussion and Analysis for the first quarter ended January 29th, 2017 as well as the financial statements in the “Investors” section of our website at www.tc.tc

Outlook for 2017

In the printing division, we expect stable revenues from our offering to current retailers, in particular flyer printing and door-to-door distribution services, as well as higher revenues from premedia and in-store marketing product services. In addition, we will benefit from the new agreement with Lowe’s Canada to print their flyers in Canada. We will also benefit from the additional contribution from the agreement to print the Toronto Star until the end of June, and we are pursuing our initiatives to secure new newspaper printing outsourcing contracts. However, these favourable elements should be affected by a decrease in volume from certain newspaper publishers as a result of reduced circulation. Furthermore, our commercial and magazine printing activities will be affected by a reduction in print advertising. Lastly, the completion of the non-recurring contract to print Canada’s census form in the second quarter of 2016 will have an unfavourable effect in the second quarter of 2017. With respect to adjusted operating earnings, we will continue our operational efficiency initiatives as in the past.

In our packaging division, we will benefit from the contribution from the acquisition of Robbie Manufacturing until the end of June, and from the acquisition of Flexstar Packaging until the end of our fourth quarter. In addition, once fully integrated, these acquisitions will also generate synergies. Furthermore, to support our transformation and future growth, we will continue to deploy resources to strengthen our sales force and develop our manufacturing platform. Lastly, we will maintain our disciplined acquisition approach in this promising market in order to invest in quality assets that meet our strategic criteria.

In the Media Sector, the impact of the transformation of the advertising market on our local newspaper publishing activities will continue, but will be partly offset by our cost reduction initiatives and our strategic exit from our interactive marketing solutions activities until the end of our second quarter of 2017. With respect to the Business and Education group, we expect that revenues and adjusted operating earnings will remain stable.

To conclude, we expect to generate significant cash flows and maintain our excellent financial position, which should enable us to continue investing to support our transformation into flexible packaging.

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 provide a better indicator of the performance of the Corporation’s activities. 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.

Three months ended
(in millions of dollars, except per share amounts) January 29,
2017
January 31,
2016
Operating earnings $ 62.4 $ 51.6
Restructuring and other costs (revenues) (2.3 ) 5.5
Impairment of assets 1.2
Adjusted operating earnings $ 61.3 $ 57.1
Depreciation and amortization 26.6 26.8
Adjusted operating earnings before depreciation and amortization $ 87.9 $ 83.9
Three months ended
January 29, 2017 January 31, 2016
Total Per share Total Per share
Net earnings $ 42.7 $ 0.55 $ 37.3 $ 0.48
Restructuring and other costs (revenues), net of related taxes (2.3 ) (0.03 ) 4.1 0.05
Impairment of assets, net of related taxes 0.9 0.01
Adjusted net earnings $ 41.3 $ 0.53 $ 41.4 $ 0.53
As at January 29,
2017
As at October 31,
2016
Long-term debt $ 347.8 $ 347.9
Current portion of long-term debt 0.1 0.2
Cash (67.0 ) (16.7 )
Net indebtedness $ 280.9 $ 331.4
Adjusted operating earnings before depreciation and amortization (last 12 months) $ 394.1 $ 390.1
Net indebtedness ratio 0.7 x 0.8 x

Dividend

The Corporation’s Board of Directors declared a quarterly dividend of $0.20 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on April 19, 2017 to shareholders of record at the close of business on April 3, 2017. The Corporation thus increased the dividend per participating share by 8.1%, or $0.06, raising the annual dividend from $0.74 to $0.80 per share. This increase reflects TC Transcontinental’s solid cash flow position.

Additional Information

Annual General Meeting of Shareholders

Transcontinental Inc. will hold its Annual General Meeting of Shareholders today at 1:30 p.m. at the Saint James’s Club, 1145 Union Avenue, in Montreal. For those who are unable to attend in person, an audio webcast of the meeting will be available as of March 6 on the Corporation’s website www.tc.tc.

Conference Call

Upon releasing its first quarter 2017 results, the Corporation will hold a conference call for the financial community today at 11:30 a.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)(TSX: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 2016. 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 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, 2016, in the latest Annual Information Form and have been updated in the MD&A for the first quarter ended January 29th, 2017.

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 March 3, 2017.

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 March 3, 2017. 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
(in millions of Canadian dollars, except per share data) January 29,
2017
January 31,
2016
Revenues $ 503.6 $ 498.9
Operating expenses 415.7 415.0
Restructuring and other costs (revenues) (2.3 ) 5.5
Impairment of assets 1.2
Operating earnings before depreciation and amortization 89.0 78.4
Depreciation and amortization 26.6 26.8
Operating earnings 62.4 51.6
Net financial expenses 5.1 3.1
Earnings before share of net earnings in interests in joint ventures and income taxes 57.3 48.5
Share of net earnings in interests in joint ventures, net of related taxes (0.1 )
Income taxes 14.5 11.2
Net earnings $ 42.7 $ 37.3
Net earnings per share – basic $ 0.55 $ 0.48
Net earnings per share – diluted $ 0.55 $ 0.48
Weighted average number of shares outstanding – basic (in millions) 77.2 78.0
Weighted average number of shares – diluted (in millions) 77.4 78.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
Three months ended
(in millions of Canadian dollars) January 29,
2017
January 31,
2016
Net earnings $ 42.7 $ 37.3
Other comprehensive income
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 1.4 (6.5 )
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 0.4 2.0
Related income taxes 0.5 (1.3 )
1.3 (3.2 )
Cumulative translation differences
Net unrealized exchange gains (losses) on the translation of the financial statements of foreign operations (9.4 ) 19.6
Net change in the fair value of derivatives designated as hedges of net investments in foreign operations 1.2 (0.7 )
Related income taxes 0.3 (0.2 )
(8.5 ) 19.1
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 19.8 (17.9 )
Related income taxes 5.4 (4.8 )
14.4 (13.1 )
Other comprehensive income 7.2 2.8
Comprehensive income $ 49.9 $ 40.1
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Unaudited
(in millions of Canadian dollars)

Share
capital

Contributed
surplus

Retained
earnings

Accumulated
other
comprehensive
income

Total equity

Balance as at October 31, 2016 $ 361.9 $ 3.2 $ 700.9 $ 2.7 $ 1,068.7
Net earnings 42.7 42.7
Other comprehensive income 7.2 7.2
Shareholders’ contributions and distributions to shareholders
Exercise of stock options 6.5 (1.3 ) 5.2
Dividends (14.3 ) (14.3 )
Balance as at January 29, 2017 $ 368.4 $ 1.9 $ 729.3 $ 9.9 $ 1,109.5
Balance as at October 31, 2015 $ 368.2 $ 3.2 $ 625.5 $ 19.4 $ 1,016.3
Net earnings 37.3 37.3
Other comprehensive income 2.8 2.8
Shareholders’ contributions and distributions to shareholders
Share redemptions (3.0 ) (6.4 ) (9.4 )
Exercise of stock options 0.2 0.2
Dividends (13.2 ) (13.2 )
Balance as at January 31, 2016 $ 365.4 $ 3.2 $ 643.2 $ 22.2 $ 1,034.0
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited
(in millions of Canadian dollars) As at As at
January 29, October 31,
2017 2016
Current assets
Cash $ 67.0 $ 16.7
Accounts receivable 328.7 401.9
Income taxes receivable 4.3 5.8
Inventories 112.5 119.6
Prepaid expenses and other current assets 20.3 15.9
532.8 559.9
Property, plant and equipment 548.5 566.0
Intangible assets 212.3 217.0
Goodwill 507.8 509.7
Investments in joint ventures 2.8 2.9
Deferred taxes 157.9 171.3
Other assets 33.7 35.4
$ 1,995.8 $ 2,062.2
Current liabilities
Accounts payable and accrued liabilities $ 260.8 $ 326.4
Provisions 5.4 9.8
Income taxes payable 0.6 3.5
Deferred revenues and deposits 54.8 55.4
Current portion of long-term debt 0.1 0.2
321.7 395.3
Long-term debt 347.8 347.9
Deferred taxes 43.1 43.4
Provisions 2.5 2.9
Other liabilities 171.2 204.0
886.3 993.5
Equity
Share capital 368.4 361.9
Contributed surplus 1.9 3.2
Retained earnings 729.3 700.9
Accumulated other comprehensive income 9.9 2.7
1,109.5 1,068.7
$ 1,995.8 $ 2,062.2
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three months ended
(in millions of Canadian dollars) January 29,
2017
January 31,
2016 (2)
Operating activities
Net earnings $ 42.7 $ 37.3
Adjustments to reconcile net earnings and cash flows from operating activities:
Impairment of assets 1.2
Depreciation and amortization 33.0 33.6
Financial expenses on long-term debt 4.4 4.6
Net losses (gains) on disposal of assets (3.0 ) 0.4
Income taxes 14.5 11.2
Net foreign exchange differences and other 0.3 (14.4 )
Cash flows generated by operating activities before changes in non-cash operating items and income taxes paid 93.1 72.7
Changes in non-cash operating items (1) (0.5 ) (11.1 )
Income taxes paid (11.6 ) (27.3 )
Cash flows from operating activities 81.0 34.3
Investing activities
Business combinations (8.2 )
Business disposals 0.1 0.5
Acquisitions of property, plant and equipment (10.5 ) (14.1 )
Disposals of property, plant and equipment 6.7
Increase in intangible assets (4.1 ) (4.6 )
Cash flows from investing activities (16.0 ) (18.2 )
Financing activities
Reimbursement of long-term debt (0.1 ) (0.1 )
Net decrease in credit facility (8.0 )
Financial expenses on long-term debt (5.5 ) (5.4 )
Interest received related to previous tax reassessments 5.4
Exercise of stock options 5.2
Dividends (14.3 ) (13.2 )
Share redemptions (9.4 )
Cash flows from financing activities (14.7 ) (30.7 )
Effect of exchange rate changes on cash denominated in foreign currencies 1.6
Net change in cash 50.3 (13.0 )
Cash at beginning of period 16.7 38.6
Cash at end of period $ 67.0 $ 25.6
Non-cash investing activities
Net change in capital asset acquisitions financed by accounts payable $ $ (0.8 )

(1) During the three-month period ended January 31, 2016, an amount of $31.0 million was received and recognized as deferred revenues.

(2) Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.

Media
Nathalie St-Jean, Senior Advisor, Communications
TC Transcontinental
514-954-3581
[email protected]
www.tc.tc

Financial Community
Shirley Chenny, Advisor, Investor Relations
TC Transcontinental
514-954-4166
[email protected]
www.tc.tc