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- As expected, the strengthening Canadian dollar had a major
negative effect on revenues, operating income before amortization,
and net income.
- Despite the foreign exchange effect, adjusted net income
(before unusual items) increased by 1% (from $27.9 million
in Q3 2005 to $28.3 million in 2006), and adjusted
earnings per share was up 6% (from $0.31 to $0.33).
- Many investments in new product and service development,
extension of digital network to improve the media sector’s
positioning.
- Natalie Larivière hired as president of the media
sector and Zouhaire Sekkat as vice president, digital media
to accelerate the implementation of Evolution 2010
initiatives in the sector.
- New growth platform acquired after the quarter: Chenelière
Éducation, Canada’s largest publisher of French-language
educational resources.
- Management maintains its previously stated earnings-per-share
objective before unusual items of $1.50 to $1.60 for fiscal
2006 and is in an excellent financial position to pursue
growth.
Montreal, September 14, 2006 – Transcontinental
Inc., North America’s seventh-largest printer and Canada’s
fourth-largest print media group, today posted good growth
in adjusted earnings per share for its third quarter, ended
July 31, 2006, despite a decrease in revenues. Consolidated
revenues were $511.8 million, down $18 million (3%)
from $529.8 million in the year-earlier quarter. Variations
in the exchange rate between the Canadian dollar and its U.S.
and Mexican counterparts had a $18.7-million impact on revenues.
Thus, excluding the foreign exchange effect, revenues were
about the same as in 2005.
Adjusted net income, the non-GAAP (Generally
Accepted Accounting Principles) metric used by Transcontinental
management to evaluate net operating performance, which does
not take into account unusual items, increased by 1%, from
$27.9 million in the third quarter of 2005 to $28.3 million
in 2006, despite a negative foreign exchange effect of $4.2 million.
This effect, which alone represented a 15% reduction in adjusted
net income, and softness in the Corporation’s commercial
printing segment, were more than offset by strong results
in its U.S. direct-marketing, newspaper-publishing and distribution
activities, increased volume and efficiency in both its newspaper-printing
and Mexican operations, and lower income taxes. On a per-common-share
basis, adjusted net income increased by 6% from $0.31 to $0.33,
also reflecting the positive effect of the Corporation’s
share buy-back program.
Unusual items in the quarter totaled $3.6 million.
Of that, $2.4 million reflects two unusual adjustments
to income taxes. First, following the Quebec government decision
to amend retroactively the Taxation Act and other legislative
provisions (Bill 15), Transcontinental had to account for
an unusual charge for taxes and related charges of $8.4 million
in the third quarter. This item was partially offset by the
effect of the change in statutory tax rates, which resulted
in a decrease in future income tax liabilities, thus reducing
income tax expense by $6.0 million in the third quarter. Impairment
of assets and restructuring costs accounted for the remaining
$1.2 million after-tax in unusual items.
Taking into account these unusual items, net
income decreased by 10%, from $27.5 million in the third
quarter of 2005 to $24.7 million in 2006. On a per-common-share
basis, net income decreased from $0.31 to $0.28.
“Our results for the quarter are in line
with our expectations for the year,” said Luc Desjardins,
president and chief executive officer of Transcontinental.
“We continue to counterbalance the anticipated yet inevitable
effect the strengthening Canadian dollar is having on our
bottom line with the benefits we are reaping from important
restructuring initiatives, investments in new technology,
and other efficiency improvements, which are yielding savings
across the Corporation, most notably in our U.S. direct marketing
activities. As well, small but strategic media acquisitions
realized at the beginning of the quarter contributed to our
results, while two significant senior management additions
– Natalie Larivière as our media sector president
and Zouhaire Sekkat as vice president of digital media –
position us well to accelerate our growth.
“Based on a constant exchange rate of
1.10 CAD/USD for the remainder of our fiscal year and
taking into account the effect of our share buy-back program,
we are maintaining our annual earnings-per-share objective
for 2006 because of our confidence in our ongoing operations
and our plans,” continued Mr. Desjardins. “For
the balance of the year, we plan to: focus on sales development
efforts; define our strategy to counter competitive market
conditions in commercial printing; put more effort into developing
organic growth, including newspaper outsourcing projects in
the U.S.; and pursue our strategic investment plan to support
a number of new non-capital-expenditure initiatives as outlined
in our Evolution 2010 business plan.”
Recent Developments – Third Quarter,
2006
Between May 1 and July 31, 2006, Transcontinental made a number
of strategic announcements.
- Thanks to a multi-year licensing agreement with U.S.
publisher Meredith Corporation, beginning in spring 2007
Transcontinental will publish the Canadian version of More
magazine, which targets women over age 40 and has seen its
U.S. circulation triple since its 1998 launch.
- The Corporation made an investment in a partnership with
Pecunia, an industry-leading provider of webcast and video
communication solutions over IP (Internet Protocol) to corporations,
governments and other organizations. Pecunia’s tools
and expertise had already contributed to the successful
launch of Transcontinental Media’s WebTV studio for
the French-language news hub LesAffaires.com
in April, and will allow Transcontinental Media to leverage
the extensive written content from its publications by webcasting
high-quality video across its many websites.
- Transcontinental acquired the popular recipe website
recettes.qc.ca, which presents simple and economical everyday
recipes to its audience of close to a million unique visitors
per month and 137,000 subscribers to its weekly newsletter.
- The Corporation purchased Le Progrès,
the weekly community newspaper for Coaticook, in Quebec’s
Eastern Townships region, as well as the two regional directories
it publishes annually. The transaction brought Transcontinental
Media’s Quebec community newspaper total to 94 (annual
circulation: 120 million copies), the largest network
in the province.
- Transcontinental announced a $25-million investment in
its St-Hyacinthe flyer and insert printing plant, including
a new 8-unit KBA 618 press and related peripheral equipment
and an extra 22,500 square feet added to the building.
- It installed the world’s first 64-page Goss Sunday
4000 high-speed book-printing press system with Automatic
Transfer, at its Transcontinental Interglobe plant in Beauceville,
Quebec, a $25-million investment.
- To improve efficiency in its commercial printing operations,
the Corporation began combining its commercial printing
and direct-marketing facilities in the Toronto area. The
equipment at Transcontinental O’Keefe Toronto will
be transferred to the Transcontinental Direct Toronto facility
by the end of September.
Financial Review – First Nine
Months of fiscal 2006
For the nine-month period ended July 31, 2006, the Corporation’s
consolidated revenues were up slightly to $1,612.9 million
from $1,602.0 million in the year-earlier period, while
adjusted operating income before amortization decreased by
5%, from $257.3 million in 2005 to $245.4 million
in 2006. The JDM acquisition completed at the beginning of
the second quarter of fiscal 2005 and acquisitions completed
in fiscal 2006 in the media sector contributed $26.7 million
to revenues and $3.6 million to adjusted operating income
before amortization. Variations in the exchange rate between
the Canadian dollar and its U.S. and Mexican counterparts
resulted in a $37.2-million decrease in revenues and a $15.9-million
decrease in adjusted operating income before amortization.
Organic revenue growth was $7.4 million in the nine-month
period compared to 2005 and comes mainly from the media sector,
which had strong performances in its newspaper publishing
and distribution activities. Organic growth was also fuelled
by stronger sales in the Corporation’s newspaper-printing
activities and its U.S. direct-marketing operations. The same
factors plus improvements in the Corporation’s Mexican
activities helped create a slight increase in adjusted operating
income before amortization from existing operations excluding
the paper and exchange-rate effects.
Net income decreased by $8.1 million (9%),
from $94.4 million in the nine-month period ended July
31, 2005 to $86.3 million in 2006, a result of the $10.2-million
negative foreign exchange impact. On a per-common-share basis,
it decreased from $1.06 to $0.99. Adjusted net income, which
does not take into account after-tax restructuring charges
of $3.3-million in 2006 and $3.9 million in 2005, nor
a $2.4-million net unusual adjustment to income taxes in 2006,
decreased by $6.3 million (6%), from $98.3 million
in the nine-month period ended July 31, 2005 to $92.0 million
in 2006. On a per-common-share basis, it decreased by 5% from
$1.10 to $1.05.
Reconciliation of Non-GAAP Financial
Measures
Financial data have been prepared in conformity with 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.
Below is a table reconciling GAAP financial
measures to non-GAAP financial measures.
Normal Course Issuer Bid
The Corporation is authorized to purchase for cancellation
on the open market, between November 21, 2005 and November
20, 2006, up to 3,578,325 of its Class A Subordinate Voting
Shares, representing 5% of the 71,566,506 issued and outstanding
Class A Subordinate Voting Shares as of November 11, 2005,
and up to 887,015 of its Class B Shares, representing 5% of
the 17,740,294 issued and outstanding Class B Shares as of
November 11, 2005. The purchases are made in the normal course
of business at market prices through the facilities of the
Toronto Stock Exchange in accordance with the requirements
of the exchange.
During the third quarter of fiscal 2006, the
Corporation purchased 399,300 of its Class A Subordinate Voting
Shares at a weighted average price of $19.19 for a total consideration
of $7.7 million and 170,551 of its Class B Shares at
a weighted average price of $18.95 for a total consideration
of $3.2 million. Of the total consideration of $10.9
million, $2.6 million corresponds to the book value and
$8.3 million corresponds to the premium paid. The premium
was accounted for as a decrease in retained earnings.
During the nine-month period ended July 31,
2006, the Corporation purchased 2,408,600 of its Class A Subordinate
Voting Shares at a weighted average price of $19.06 for a
total consideration of $46.0 million and 575,651 of its Class
B Shares at a weighted average price of $18.87 for a total
consideration of $10.8 million. Of the total consideration
of $56.8 million, $14.3 million corresponds to the
book value and $42.5 million corresponds to the premium
paid. The premium was accounted for as a decrease in retained
earnings. As at July 31, 2006, there were 69,474,708 Class
A Subordinate Voting Shares and 17,123,003 Class B Shares
of the Corporation issued and outstanding, for a total of
86,597,711 common shares issued and outstanding.
Between August 1, 2006 and September 13, 2006,
the Corporation purchased 72,700 of its Class A Subordinate
Voting Shares at a weighted average price of $18.69 for a
consideration of $1.4 million and 60,900 of its Class
B Shares at a weighted average price of $18.77 for a consideration
of $1.1 million, in accordance with its Normal Course
Issuer Bid. As at September 13, 2006, there were 69,402,008
Class A Subordinate Voting Shares and 17,062,103 Class B Shares
of the Corporation issued and outstanding, for a total of
86,464,111 common shares issued and outstanding.
Dividend
At its September 14, 2006 meeting, the Corporation’s
Board of Directors declared a quarterly dividend of $0.065
per share on Class A Subordinate Voting Shares and Class B
Shares. These dividends are payable on October 29, 2006 to
shareholders of record at the close of business on October
6, 2006. On an annual basis, this represents a dividend of
$0.26 per common share.
Subsequent Event
Transcontinental entered a high-growth-potential publishing
segment by acquiring Chenelière Éducation on
August 31, 2006. The company employs about 190 people in the
Montreal region and in fiscal 2006, its revenues were close
to $50 million. The acquisition of Chenelière
Éducation and its well-established brands instantly
makes Transcontinental a market leader in French-language
educational resources publishing while also helping it diversify
its media sector’s revenue base into non-advertising-related
revenue streams. The company has a consistent track record
of generating strong cash flow and should be accretive to
earnings in the first year. The contribution should be limited
in the fourth quarter of 2006, however, as it was acquired
just after the back-to-school period, the strongest season
in this industry. As Transcontinental is already a book publisher
and printer, this acquisition represents a natural development
of the Corporation’s product and service offering.
Additional Information
Management's Discussion and Analysis for the third quarter
ended July 31, 2006, along with full financial statements
and notes, are posted on the home page of the Corporation’s
Web site at www.transcontinental.com.
Upon releasing its quarterly results, Transcontinental
will hold a conference call for the financial community today
at 2:30 p.m. Media may hear the call in listen-only mode,
or tune in to the simultaneous audio broadcast on Transcontinental's
website, which will be archived for 30 days.
Profile
The largest printer in Canada and seventh-largest in North
America, Transcontinental also ranks as the country’s
leading publisher of consumer magazines and French-language
educational resources, and its second-largest community newspaper
publisher. Transcontinental distinguishes itself by creating
strategic partnerships that integrate the company into its
customers’ value chain, notably through its unique newspaper
printing outsourcing model and its value-added services. From
mass to highly personalized marketing, the company offers
its clients integrated solutions which also include a diverse
digital platform and a door-to-door distribution network of
advertising material. Transcontinental is a company whose
values, including respect, innovation and integrity, are central
to its operation.
Transcontinental (TSX: TCL.A, TCL.B) has more
than 14,000 employees in Canada, the United States and Mexico,
and reported revenues of C$2.2 billion in 2005.
Note: This 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,
exchange rate, energy costs, increased competition, the Corporation’s
capacity to implement its strategic plan and cost-reduction
program and make and integrate acquisitions. The risks, uncertainties
and other factors that could influence actual results are
described in Management’s Discussion and Analysis for
the third quarter ended July 31, 2006 and for the fiscal year
ended October 31, 2005 and the 2005 Annual Information Form.
The forward-looking information in this release
is based on current expectations and information available
as of September 14, 2006. We disclaim any intention or obligation
to update or revise any forward-looking statements unless
otherwise required by the Securities Authorities.
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For Information:
Media
Jake Brennan
Media Relations Coordinator
Transcontinental Inc.
Telephone: (514) 954-4000
jake.brennan@transcontinental.ca
Financial Community
Stéphane Milot
Director, Investor Relations and
External Communications
Transcontinental Inc.
Telephone: (514) 954-2821
stephane.milot@transcontinental.ca
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