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- Growth of 2% in revenues and 2% in adjusted operating
income before amortization1; excluding the foreign
exchange rate impact, growth of 3% and 9% respectively.
- Organic growth in revenues of 3% and in adjusted operating
income before amortization1 of 2%
- Slight increase in adjusted operating income margin
before amortization and depreciation, from 15% to 15.1%;
excluding the foreign exchange rate impact, margin of 15.8%.
- Decrease of 9% in earnings per share; excluding the
foreign exchange rate impact, increase of 3%.
- On a per-share basis, adjusted net income1,
which excludes asset impairment, restructuring costs and
unusual adjustments to 2006 income taxes, went from $1.51
to $1.50, which is slightly less than the range of $1.52
to $1.65 announced at the start of the fiscal year; excluding
the foreign exchange rate impact, it would have been $1.68,
up 11%, in line with the Corporation’s long-term objective.
- Purchase by the Corporation of 2.5 million shares,
totalling $53 million, under its share buy-back program.
- Signing of an exclusive 15-year contract, valued at
more than one billion U.S. dollars (excluding paper),
to print the San Francisco Chronicle daily newspaper
and its related products. Production is slated to start
in Spring 2009.
- Acquisition of PLM Group, Canada’s fourth-largest
printer and a leader in the direct marketing segment.
- Announcement of the appointment of François
Olivier as President and Chief Executive Officer effective
February 20, 2008.
- Decision by management to end the practice of providing
a specific annual earnings-per-share objective.
- Excellent financial position for further growth.
Note: Following the announcement of December 6, 2007, the
financial statements for fiscal 2006 have been restated.
1 Refer to Reconciliation of Non-GAAP Financial
Measures.
Montreal, December 18, 2007 – Transcontinental announced
today that it recorded adjusted net earnings per share of
$1.50 for 2007, which is slightly lower than the range of
$1.52 to $1.65 announced at the beginning of the fiscal year.
The excellent performance by the Media sector, due in part
to the successful integration of Chenelière Éducation,
and by the Printing Products and Services sector, especially
the Mexican operations, as well as the organic growth in most
of our segments, could not completely offset the impact of:
the unprecedented rise in the Canadian dollar versus the U.S.
dollar, which in the fourth quarter had a negative impact
of $0.05 per share compared to 2006, and the impact of the
mortgage crisis in the United States on our direct marketing
activities since last July.
“In this past fiscal year, Transcontinental again demonstrated
its ability to improve its operating performance under difficult
conditions, with an increase of 11% in adjusted net earnings
per share, excluding the foreign exchange rate impact, which
is in line with our long-term objective,” said Luc Desjardins,
President and Chief Executive Officer of Transcontinental.
“In 2008, we will fully benefit from the reorganizations
and technology investments of the past two years. We are confident
that we will achieve the objectives of our Evolution 2010
business project, which aims to achieve, among other things,
an average increase in adjusted earnings per share of 10%
per year, excluding the impact of the foreign exchange rate,
and average organic growth in revenues of 5% per year. To
that end, we have launched The Race Towards Excellence to
mobilize our people around four major areas: Talent, Sales
Growth, Efficiency and Digital. We will also focus on our
three priority growth areas: outsourcing of newspaper printing,
direct marketing and digital development in the Media sector.”
The Corporation is in an excellent financial position for
further growth, for example by acquisitions, with a net funded
debt to total capitalization ratio of 29% as at October 31,
2007, below the long-term objective of 35% - 50%.
Restatement of Prior Years’ Financial Statements
On December 6, 2007, Transcontinental Inc. announced that
it would be restating its financial statements for prior years.
While preparing its year-end financial statements, management
identified two non-cash accounting errors. First, income tax
liabilities at the end of fiscal 2006 were understated by
approximately $10 million. This was mainly related to
accounting provisions for income taxes on inter-company transactions
and to future income tax assets on operating losses considered
twice. Second, property, plant and equipment of Mexican subsidiaries
were overstated by approximately $12 million (net impact
of about $10 million, net of related income taxes) at
the end of fiscal 2006, due to amortization calculated incorrectly.
The impact of these restatements on net income will total
approximately $20 million, of which approximately $2 million
relates to 2006 and approximately $18 million to prior
years. This has no impact on cash flow or cash balances. Prior
to these restatements, 2006 net income was $137.9 million
and 2006 total property, plant and equipment was $713.6 million.
The Corporation’s internal controls and procedures are
very sound overall and the recent improvements, which led
to the discovery of these two errors, reduce the risk of similar
errors occurring in the future.
Financial Highlights
In fiscal 2007, consolidated revenues rose 2%, from
$2.28 billion to $2.33 billion, while adjusted operating
income before amortization also rose 2%, from $342.7 million
to $350.4 million. Excluding the foreign exchange rate
impact of the Canadian dollar versus its U.S. and Mexican
counterparts, which caused revenues to decline by $28.2 million
and adjusted operating income before amortization by $22.3 million,
revenue would have grown 3% and adjusted operating income
before amortization by 9%. Note that organic growth accounted
for a $60.9 million increase in revenue, up 3%, and for
a $7.3 million increase in adjusted operating income
before amortization, up 2%. Organic growth in operating income
stems mainly from the printing of commercial products, magazines
and catalogues, Mexican operations and door-to-door distribution.
Net income was down 11%, from $135.8 million in 2006
to $120.6 million in 2007. This decrease was mainly due
to the impact of the negative foreign exchange rate and several
unusual items. On a per-share basis, due to the positive impact
of the share buy-back program, the decrease in net earnings
was limited to 9%, from $1.56 to $1.42. Adjusted net income,
which does not take into account asset impairment, restructuring
costs and unusual adjustments to 2006 income taxes, was down
4%, from $132.2 million to $127.2 million. On a
per-share basis, adjusted net income was down 1%, from $1.51
to $1.50.
Excluding the negative foreign exchange rate impact in fiscal
2007, adjusted earnings per share would have been $1.68, up
11% over 2006. This measurement is a good indicator of the
Corporation’s operating performance in 2007.
In the fourth quarter, Transcontinental recorded consolidated
revenues of $618 million, up 2% compared to $605 million
in the same quarter of 2006, while adjusted operating income
before amortization rose 3%, from $97.2 million to $100.6 million.
Excluding fluctuations in the exchange rate between the Canadian
dollar and its U.S. and Mexican counterparts, which reduced
revenue by $12 million and adjusted operating income
before amortization by $7.3 million, revenues would have
grown by 4% and adjusted operating income before amortization
by 11%. Note that organic growth accounted for $26.5 million
of quarterly revenues, up 4%, and for $2.7 million of
adjusted operating income before amortization, up 3%.
Net income declined 24%, from $51.1 million to $38.6 million;
on a per-share basis, net earnings declined 22%, from $0.59
to $0.46. Adjusted net income, which does not take into account
asset impairment, restructuring costs and unusual adjustments
to 2006 income taxes, was down 6%, from $41.8 million
to $39.3 million; on a per-share basis, adjusted net
earnings declined 2%, from $0.48 to $0.47. Excluding the foreign
exchange rate impact, adjusted net earnings per share would
have grown 8%.
For more detailed financial information, please see Management’s
Discussion and Analysis for the Year ended October 31, 2007
at www.transcontinental.com, under “Investors.”
Change in the Corporation’s Practices with Respect
to Disclosure of Information
Over the past year, Transcontinental has reviewed its practices
with respect to the disclosure of information. Given changes
in its environment, the Corporation needs to increasingly
focus on its medium to long-term development for the benefit
of its shareholders. In light of this, management deems it
more advisable to discontinue the practice of providing an
explicit earnings-per-share projection on an annual basis.
Consequently, management will continue to announce long-term
financial objectives like those for the Evolution 2010
business project, to provide forward-looking information on
the Corporation’s sensitivity to exchange rates, as
well as information on income tax rates, capital expenditures
and non-capitalized investments, and to provide qualitative
statements about market conditions and the activities of business
units.
This modification does not in any way change Transcontinental’s
commitment to maintaining transparent and open communication
with financial markets and the financial community. Management
believes that this decision is in the best interests of the
Corporation and its shareholders.
Operating Highlights
The main operating highlights for fiscal 2007 are as follows:
Media Sector
- Community newspapers act as the voices of the communities
they serve, which makes them indispensable. Transcontinental
strengthened its position as Canada’s second-largest
publisher of community newspapers with the acquisition of
The Grenfell Sun, The Broadview Express and The
Oxbow Herald, in Saskatchewan, along with The Seaway
News, in Ontario, and The Springhill–Parrsboro
Record, in Nova Scotia. The Corporation also confirmed
its leading position in Quebec in the construction and renovation
market by adding six magazines from print media group Les
Éditions Ma Maison.
- Transcontinental has identified custom publishing as a
major growth segment. To offer this service to its Canadian
and U.S. customers, the Corporation launched Transcontinental
Custom Communications, a joint venture with Seven Squared,
one of the top custom publishing agencies in the United
Kingdom.
- Transcontinental is Canada’s largest publisher of
consumer magazines. Following an exclusive agreement with
well-known U.S. publisher Meredith Corporation, Transcontinental
launched the Canadian version of More magazine. Named
Magazine of the Year by Advertising Age in the U.S. in 2006,
More targets the 40+ female demographic. This is
an underexploited niche in the Canadian market and rounds
out Transcontinental’s portfolio of women’s
magazines. The early issues were highly successful with
advertisers and readers alike.
- Organic growth accounted for $23 million in revenue
in the Media sector, up 4% over 2006, and $4 million
in its adjusted operating income before amortization, up
4.2%. Growth was achieved through digital development, numerous
special projects in newspapers and magazines, including
the launch of new titles, and door-to-door distribution.
- The Internet and digital technology are becoming increasingly
integrated into the day-to-day activities of consumers,
which is pushing the newspaper and magazine industry to
adapt and innovate. In 2007, Transcontinental put even more
focus on developing digital platforms and it now heads a
network of more than 120 sites that reach an average of
four million unique visitors a month. These sites
serve communities of interest in business and finance, fashion
and lifestyle, renovation, design and decorating, gardening,
seniors, sports & leisure, local communities and classified
ads. Most of the sites are interactive extensions of magazines
and daily or weekly newspapers, but others have no print
counterpart. Note the launch of the new French-language
site lebelage.ca, aimed at the 50+ community; the revamped
version of lesaffaires.com, the top French-language business
and finance site in Canada; as well as canadianliving.com
and thehockeynews.com. All these sites have seen their audiences
and levels of engagement increase substantially, with a
29% increase in the number of unique monthly visitors and
a 46% increase in the number of pages viewed.
Printing Sectors
- The Corporation identified direct marketing as one of
its main growth niches. Already one of the key players in
the United States, Transcontinental consolidated its position
in Canada by acquiring PLM Group. Founded in 1987, PLM has
about 500 employees in the Greater Toronto area and
reported revenue of $126 million in 2006. In addition
to direct marketing products and services, PLM offers leading
edge services such as premedia and digital printing. Its
diversified customer base includes many leading companies.
- Newspaper printing in the United States is another priority
growth segment for Transcontinental. An important step was
taken in early fiscal 2007 with the signing of a 15-year
contract, valued at one billion U.S. dollars (two billion
dollars including paper), in which Hearst Corporation outsourced
the printing of the San Francisco Chronicle and its
related products to Transcontinental. The project is on
schedule and the new plant is slated to start printing in
spring 2009. The team is in place, the site has been chosen
and the printing equipment ordered.
- Also in 2007, Transcontinental set up a division that
will be devoted full time to the North American development
of its newspaper printing outsourcing service and operations
at its newspaper printing plants in the United States. Talks
are progressing with a number of publishers and the Corporation
is optimistic about the eventual announcement of another
contract.
- Transcontinental was, for the third time in a row, the
designated printer of the French edition of the Harry Potter
series for the Canadian market. With more than 800 pages
per copy, the 260,000 copies of Harry Potter et les reliques
de la mort, the seventh and final volume in the series,
printed by Transcontinental Gagné, hit the Canadian
market as scheduled on October 26, 2007.
- Organic growth in sales means offering existing customers
a broader range of products and services. The renewal of
the contract with the Hudson’s Bay Company is an excellent
example of this. In addition to printing the flyers for
Zellers, The Bay and Home Outfitters, Transcontinental will
also be handling the loyalty programs for these banners,
as well as several new value-added products and services.
About $75 million of this contract, valued at $350
million, is new business for Transcontinental.
Furthermore, in April, Transcontinental started printing
the flyers for the Provigo chain at its plant in Saint-Hyacinthe,
Quebec. This gain came from a new agreement with Loblaw
Companies Ltd. that took effect in 2006. Under this contract,
Transcontinental continues to print flyers for the Loblaw
banner across Canada and in spring 2007 added the Provigo
banner. The contract has an annualized value of over $60
million, of which one third is new business from
Provigo.
Environment
A leader in protecting the environment and sustainable development,
Transcontinental plans to continue exercising its leadership
in its own way: by mobilizing its employees and taking concrete
action. In 2007, the Corporation received an award from PrintAction
magazine in the category “Most Progressive Environmental
Process.” Company-wide environmental policies and procedures
are founded on three guiding principles: protection of the
environment for present and future generations, reduction
of risk and efficiency improvement, and introduction of improved
technology and processes.
Numerous initiatives from every level of the company were
implemented in 2007. These included the launch of Vision
durable, a magazine on sustainable development, and its
website visiondurable.com; the offer to book publishers of
100% recycled paper at price equivalent to regular paper;
the announcement that Transcontinental Direct Montreal had
achieved FSC certification, the company’s seventh printing
plant to do so; “green” issues of several magazines
and newspapers, including Canadian Living, Coup de pouce
and Métro; and awards won in the United
States by Transcontinental Direct Pennsylvania and Transcontinental
Miami Valley, in Ohio.
The fourth quarter was marked by two major initiatives.
First, the Corporation announced that it was introducing a
paper purchasing policy that promotes the use of environmentally
friendly paper, drafted with input from Markets Initiative.
According to this non-profit organization dedicated to protecting
forests and biodiversity, “Transcontinental is the first
major North American print-media conglomerate to take such
a comprehensive step towards safeguarding our forests and
climate.”
The Corporation also announced that its Publi-Sac, distributed
weekly to some three million households in Quebec and
eastern Ontario, will be biodegradable by early 2008. Transcontinental
has chosen an oxo-biodegradable technology known as Totally
Degradable Plastic Additives™ (TDPA™), developed
by EPI, a Vancouver-based company considered a pioneer in
innovative environmental technologies.
Reconciliation of Non-GAAP Financial measures
Financial 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.
Below is a table that reconciles GAAP financial measures to
non-GAAP financial measures.
Corporate Affairs
On September 13, 2007, the Corporation’s Board of Directors
unanimously recommended the appointment of François
Olivier as President and Chief Executive Officer effective
February 20, 2008, the date of the next annual shareholders’
meeting. Mr. Olivier has been with Transcontinental since
1993 and has an impressive track record, having risen through
the ranks one by one, from managing one printing plant to
becoming President of the Printing Products and Services sector.
Until February 20, Mr. Olivier will act as the Chief Operating
Officer, with responsibility for the Corporation’s three
operating sectors. To ensure a smooth transition, Luc Desjardins
will remain President and Chief Executive Officer until then.
Mr. Desjardins joined Transcontinental in 2000 as Chief Operating
Officer and became Chief Executive Officer in early 2004.
The appointment of Mr. Olivier reflects corporate continuity.
In addition, Rémi Marcoux, the founder and Executive
Chairman of the Board of Transcontinental, was invested as
a Member into the Order of Canada in October. This award is
the country’s highest civilian honour. As noted by the
office of the Governor General, “Rémi Marcoux
is the perfect example of those builders who contribute to
the vitality of the economic sector and the growth of communities.
He has made Transcontinental a flagship of the Canadian economy
in the field of printing and publishing. The company is also
known as one of the most socially responsible in Canada”.
Normal Course Issuer Bid – Fiscal 2007
On November 15, 2006, The Corporation was authorized to purchase
for cancellation on the open market, between November 21,
2006 and November 20, 2007, up to 3,448,698 of its Class A
Subordinate Voting Shares, representing 5% of the 68,973,966
issued and outstanding Class A Subordinate Voting Shares
as of November 7, 2006, and up to 852,907 of its Class B Shares,
representing 5% of its 17,058,145 issued and outstanding Class B
Shares as of November 7, 2006.
During the twelve-month period ended October 31, 2007, the
Corporation purchased 2,354,700 of its Class A Subordinate
Voting Shares at a weighted average price of $21.27 for a
total consideration of $50.1 million. It also bought
137,800 of its Class B Shares at a weighted average price
of $21.69 for a total consideration of $3 million. Of
the total consideration of $53.1 million, $13.3 million
corresponds to the book value and $39.8 million corresponds
to the premium paid. The premium was accounted for as a decrease
in retained earnings. The purchases were 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.
In the fourth quarter of fiscal 2007, the Corporation purchased
140,800 of its Class A Subordinate Voting Shares at a
weighted average price of $20.92 for a total consideration
of $3 million. It also bought 18,000 of its Class B
Shares at a weighted average price of $21.19 for a total consideration
of $0.4 million. Of the total consideration of $3.4 million,
$0.8 million corresponds to the book value and $2.6 million
corresponds to the premium paid. The premium was accounted
for as a decrease in retained earnings.
Dividend
At its December 17, 2007 meeting, the Corporation’s
Board of Directors declared a quarterly dividend of $0.07
per share on Class A Subordinate Voting Shares and Class B
Shares. These dividends are payable on January 25, 2008 to
shareholders of record at the close of business on January
7, 2008. On an annual basis, this represents a dividend of
$0.28 per common share. Dividends paid by Transcontinental
to Canadian residents are eligible dividends under federal
and provincial income tax laws.
Additional Information
Upon releasing its quarterly results, Transcontinental will
hold a conference call for the financial community today at
10:00 a.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. For Media requests
for information or interviews, please contact Nessa Prendergast,
Director, Media Relations, at (514) 954-2809.
About Transcontinental
The largest printer in Canada and sixth-largest in North America,
Transcontinental is also 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 include a continent-leading direct marketing offering,
a diverse digital platform and a door-to-door advertising
material distribution network. 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 15,000
employees in Canada, the United States and Mexico, and reported
revenues of C$2.3 billion in 2007.
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 and the
Corporation’s capacity to implement its strategic plan
and cost-reduction program and make and integrate acquisitions
into its activities. The risks, uncertainties and other factors
that could influence actual results are described in the Corporation’s
Management’s Discussion and Analysis and the
Annual Information Form.
The forward-looking information in this release is based on
current expectations and information available as of December
18, 2007. We disclaim any intention or obligation to update
or revise any forward-looking statements unless otherwise
required by the Securities Authorities.
- 30 -
For information:
Media
Nessa Prendergast
Director, Media Relations
Transcontinental Inc.
Telephone: (514) 954 2809
nessa.prendergast@transcontinental.ca
Financial Community
Jennifer F. McCaughey
Director, Investor Relations
Transcontinental Inc.
Telephone: (514) 954 2821
jennifer.mccaughey@transcontinental.ca |
