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First
let me begin with our fiscal 2009 results. It is
tough to find absolute positives when talking about
our 2009 results but considering the effects from
the recession, the financial crisis and the continued
transformation of the print and media industries,
and when we compare them to our peers, we can be
very pleased and frankly quite proud. As François
mentioned earlier, also reassuring is the fact our
results improved steadily every quarter. I'll
get back to this in a minute.
Our
consolidated revenues decreased 6% to $2.3 billion,
principally as a result of the financial crisis,
which particularly affected our direct mail operations
in the United States, coupled with the recession,
which reduced print volumes as well as advertising
revenues from our publishing business. Excluding
our direct mail operations in the U.S., our revenues
would have declined only 3%, which is quite an accomplishment
given the operating environment we faced. In fact,
what is even more impressive is that our consolidated
adjusted EBITDA only decreased 3% to $349 million.
These
results were possible because of the successful
implementation of our rationalization plan that
was put in place to mitigate the effects of the
recession. Through the various cost reduction measures
François described earlier, we saved $80 million
in fiscal 2009 or $110 million on an annualized
basis. Having said this, these rationalization
measures also came with a cost. An amount of $78 million
before tax, of which $57 million were cash
costs, was charged to income as impairment of assets
and restructuring costs. This represents a needed
and sound investment with a relatively quick payback.
Furthermore,
the recession and the rapid transformation of the
print and media industries also led us to re-evaluate
the goodwill on our balance sheet. An amount of
$173 million before tax, or $158 million
after tax, was charged to income as impairment of
goodwill and intangible assets, primarily in the
second quarter of fiscal 2009. This mainly relates
to our commercial printing activities.
As
a result of these unusual charges, net income obviously
decreased significantly in fiscal 2009. However,
excluding these unusual items, it only decreased
7%.
It
is important to highlight that our results improved
consistently quarter after quarter demonstrating
the successful execution of our rationalization
plan. Recall that our first quarter results were
very disappointing with our adjusted EPS down 44%
year-over-year as the rationalization plan had not
yet been implemented. However, after the implementation
of our plan in mid-February, our second quarter
adjusted EPS was down only 12%. This was the tipping
point. Half way through the year, the trend actually
reversed. In fact, our third quarter adjusted EPS
was actually up 5% while our fourth quarter adjusted
EPS was up 12%. Therefore, the bulk of the annual
EPS decrease was really experienced in the first
quarter when the majority of the rationalization
measures were not in place.
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Now
let's review the results of the extensive
financing work we accomplished during the year.
Recall that at the end of fiscal 2008 we were facing
three financing maturities: a $150 million
line of credit due in May, $100 million debentures
due in June and our $300 million securitization
program due in August. These re-financings needed
to be completed in addition to finding other sources
of financing to support our accelerated capital
expenditure program, mainly for the San Francisco
Chronicle and the Globe & Mail projects.
To top it all off, all of this had to be completed
in one of the most difficult financial environments
of our time.
I
am proud to report that we were successful. In fact,
we completed many financing and re-financing deals
totalling close to $900 million at competitive
rates. We extended our $300 million securitization
program for an additional year; we completed a private
placement offering of $100 million in unsecured
debentures with the Solidarity Fund QFL; we renewed
Tranche B of our credit facility of $150 million
for one year; we concluded a five-year loan agreement
for $100 million with Caisse de dépôt
et placement du Québec; we concluded a five-year
loan agreement for $50 million with the Société
Générale de financement; we concluded
a 6-year $85 million equipment financing deal
with a German bank; and finally we issued $100 million
of preferred shares. Overall our current average
interest rate is about 5% which is quite good in
these market conditions.
I
just want to highlight that our investment grade
credit rating status from both DBRS and Standard
and Poor's and the credibility and relationships
we had built over the years played a big part in
our success. The market recognizes our strong financial
position, our disciplined approach to financial
management as well as our strong cash flow generating
ability. In addition, we were innovative in our
approach and thought outside the box as we analyzed
different types of financing sources such as preferred
and equipment financing. As a result, we now have
a balanced debt portfolio in terms of debt products
and fixed versus variable rates with longer term
maturities.
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On
that note, let's take a closer look at our
financial condition in fiscal 2009. I am happy to
report that Transcontinental continues to generate
strong cash flow. In 2009 we generated $248 million
of cash flow from operations. Let me highlight the
major uses of this cash.
We
disbursed $262 million in capital expenditures
of which about $175 million was related to
the major newspaper projects we previously announced:
the San Francisco Chronicle, the Globe
and Mail and the Transmag project. As
you can observe, capital expenditures outside the
major projects were well contained.
In
addition, we maintained our dividend. We paid $26 million
in dividends, or 32 cents per share. For the
first time in 7 years, we decided not to increase
our dividend, preferring instead to preserve our
cash, given the prevailing market conditions.
After
the end of the fiscal year, we repaid and cancelled
our $150 million Tranche B line of credit considering
we currently have ample liquidity and we forecast
to have even more going forward. The recently announced
sale of our U.S. direct mail operations will certainly
contribute in this regard.
Having
said this, in fiscal 2010 and 2011, our $300 million
securitization program is the only significant maturity
we have. At the end of the fiscal year we were using
only a little more than $100 million of this
program. We are currently in discussions to extend
it. We are confident to reach an agreement in the
near term. At this point, we believe we will have
sufficient funds to implement our strategy over
the next many years.
Finally,
we are in a sound financial position with a net
indebtedness to total capitalization ratio of 42%
as at October 31, 2009, in the middle of the range
set by Management.
In 2009 we introduced an additional leverage ratio,
namely, net debt to EBITDA, including securitization,
with a target range between 2.0x to 2.5x by the
end of fiscal 2011. At the end of fiscal 2009 we
were at 2.6x, considering the preferred shares as
100% equity. We are confident that we will reach
the 2.0x to 2.5x target range, earlier than our
target date, as our capex will be reduced significantly
in the coming years and we will benefit fully from
our new projects, notably the San Francisco Chronicle
and the Globe and Mail. In fact, if we
were to exclude projects that are not yet fully
generating cash, our net debt to EBITDA ratio, including
securitization, would be 1.7x.
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On
that note, I would like to reiterate that the free
cash flow profile of the Company will change significantly
over the next few years. Starting in fiscal 2011,
capital expenditures will taper off to about $75 million
per year and the Company will fully benefit from
all its recent investments. Our first priority for
cash utilization over the next couple of years will
be to repay debt and prudently pursue our strategic
transformation.
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To
conclude, Transcontinental performed well in fiscal
2009 given the combination of headwinds it had to
contend with. Our rationalization plan was well
executed and the quick payback was the main driver
of our results.
Fiscal
2010 will remain full of challenges and opportunities.
We will benefit from the full year impact from the
San Francisco Chronicle and the annualized
cost savings from the rationalization plan. We will
also benefit from our enhanced offering of new and
innovative digital and marketing communications
services. However, the level of advertising spending,
which effectively drives directly or indirectly
80% of our business, will be the key determinant
of year-over-year growth in our traditional activities.
We believe we are well positioned in any instance
as we have a clear leadership position in most of
our niches, we have a culture of continuous improvement
and we have dedicated and engaged people at every
level of the organization.
Thank
you very much for your time, and I'll now hand things
back over to Rémi to conclude.
