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Thanks,
I want to thank you all for being here with us today. It’s always nice to see so many of Transcontinental’s supporters at our annual general meeting, and so many of you, our shareholders, interested in your company.
This afternoon, I will discuss our fiscal 2007 results and put them in perspective both in regards to our true operational performance and in relation to our Evolution 2010 financial objectives.
What you will find is that your company is growing, both its top line and its bottom line, it has many concrete projects for future growth and has the means to execute them.
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First let me begin with our top line. Our revenues increased 2% to $2.3 billion. On the surface, that may not seem significant but let me demonstrate the progress we have made which bodes well for the coming years. In fact, our sales grew organically close to 3% for the year. As you see from the graph on the screen, we started the first quarter with organic growth of 0,7% and improved quarter after quarter to end the year at 4,4% of organic growth. What’s more, this growth was generated by almost all of our businesses at varying degrees, media and print alike. Our Evolution 2010 objective is to grow sales organically by 5% on average per year – as you can see, we are clearly on track to do just that.
As Remi mentioned earlier, while the printing industry is going through a profound and rapid transformation, it continues to offer excellent development opportunities for those who have a winning strategy and the leadership to execute it. Your company is one of them. We are growing and have many growth projects in the pipeline for the years ahead, not the least of which is our newspaper outsourcing model.
And let’s not forget that we are not just a printing company, we are also a leading media company in Canada. While only 26% of our revenues are generated from the Media Sector, it contributes over 40% of our operating profit. We have exciting projects planned for our media business this year including the launch of More magazine for the French market in Quebec, following a very successful launch in English last year, custom publishing initiatives, the launch of Metro in Halifax as well as the launch of numerous new portals for specific communities of interest including food and well being.
Now back to our 2007 results. Let’s look at our bottom line. Our adjusted net income decreased by 4% and our net income decreased by 11%. However, if we exclude the foreign exchange impact, the numbers tell a completely different story. In fact, our adjusted net income actually increased by 11%. This measure gives a much better indication of the net operational performance of the Company in fiscal 2007. In addition to the top line organic growth I mentioned a minute ago, we continue to manage our costs very effectively year after year. In 2007 we had cost reduction programs across all groups, but particularly our commercial products group. In addition, our past restructurings and investments are starting to pay off.
Our Evolution 2010 objective is to grow adjusted earnings per share excluding the foreign exchange impact by 10% on average per year – as you can clearly observe, we have actually surpassed this objective in 2007. And we are very confident we will achieve this objective from now to the end of 2010.
Therefore, taken at face value, our 2007 results may not look that great but when you put them in perspective they are actually very good considering the market conditions we faced this year including, the current credit crunch and the rapid rise in the Canadian dollar. I feel like a broken record, but I do need to spend some time on the foreign exchange impact on our results because it has had a major impact in the past few years and again this year.
From November 2006 to October 2007, the Canadian dollar traded as high as $1,06 and as low as 84 cents, a spread of 22 cents. The rise in the Canadian dollar this year was rapid and unprecedented, passing the parity mark for the first time since 19xx. Although our foreign currency hedging contracts mitigate the effect of the dollar’s appreciation by spreading it over a longer period, the structure of our contracts meant we were hit hard again in 2007. This past year alone we:
- took a 28-million-dollar hit to our revenues,
- lost $22 million in Earnings Before Interest, Taxes and Amortization
- and $16 million in net income,
- which equals 18 cents a share.
You can see on the screen a display of our dollar’s rise over the past five years, and the cumulative impact we’ve had to overcome because of it. Compared to 2002, the dollar’s rise cumulative effect has been:
- 181 million dollars off of our top line.
- It has lightened our Earnings Before Interest, Taxes and Amortization by $72 million
- And our net income by 33 million dollars,
- or a total of 57 cents a share.
The unprecedented rise in the Canadian dollar in the back half of last year combined with its current trading range of close to parity, means that we will have to contend with another year of the foreign exchange negatively impacting our results. In fact, we expect another $20-million pre-tax impact this year if we make the assumption of parity with the US dollar. If the dollar does not appreciate any further, this should be the last year the currency spike will have a significant effect on our results.
To sum up, our 2007 results are very good operationally speaking. We are growing both the top line as well as the bottom line. We have exciting growth projects in the pipeline for our three primary growth areas including potential new newspaper outsourcing projects, the further development of our digital media platform and interesting acquisition opportunities for our direct marketing segment. We are a company in continuous development and focused on growth.
Before I discuss our financial condition, I would like to touch upon an unfortunate event that occurred this year: we had to restate our prior years’ financial statements for a total of close to $20 million as two non-cash accounting errors were identified. We take our obligation to provide accurate financial information very seriously and our internal controls remain very strong overall. In fact, recent improvements in controls and procedures led to the discovery of these two errors and reduce the risk of similar errors occurring again.
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Now if we turn to our financial condition. Your company continues to generate strong cash flow year after year. In 2007 we generated over $240 million of cash flow from our operations. Let me highlight the major uses of this cash.
First, we purchased PLM Group, the fourth largest printer in Canada, for approximately $130 million including debt. This acquisition supports our growth strategy to increase our presence in the direct marketing segment.
We also invested $130 million in capital expenditures, a portion of which related to our newspaper outsourcing project in San Francisco, a priority growth avenue for the Corporation. This represents 6% of our revenues, compared to an average of less than 4% among our main competitors. Most of our plants and equipment have been modernized and are in good shape to face the changing printing environment characterized by shorter runs and cycle times.
We also purchased 2.5 million shares for a total of about $53 million as we strongly believe share repurchases increase shareholder value. Over the past two years we have bought back 6.0 million shares for a total of $120 million. We believe buying back our own stock represents an excellent investment as it currently trades at 5.1 times EBITDA for a company that is growing, that has excellent growth prospects and that generates over 40% of its profit from its Media operations.
Furthermore, we raised our annual dividend to 28 cents per share in 2007, a 10% increase over 2006. Again this is in line with our Evolution 2010 objective to sustain our dividend growth. In fact, we have raised our dividend consistently year over year in the past five years, doubling it from 14 cents in 2003 to 28 cents in 2007.
As a result, our net debt to total capitalization ratio at the end of last year stood at 29%, slightly below our Evolution 2010 objective of between 35% and 50%. Having said this, we still have ample room to leverage the Company further in order to pursue our numerous growth opportunities. We have investment grade credit ratings from both DBRS and Standard and Poor’s as well as access to capital markets if we require it.
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To conclude, your company has performed very well operationally speaking in 2007 and is in a stronger position than ever before to pursue its development. We have exciting opportunities to grow in both our print and media operations over the next few years. We remain confident we will achieve our Evolution 2010 financial objectives, in particular, to grow adjusted earnings per share, excluding the foreign exchange impact, 10% on average per year from 2006-2010. We will grow responsibly and, under my watch, I can assure you, with financial discipline and rigour. In short, we will always strive to grow to the benefit of our three pillars – our employees, our customers and you, our shareholders.
Thank you very much for your time, and I’ll now hand things back over to Rémi to conclude.
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