Acquisitions Drive Transcontinental’s Revenue Gains for the Quarter

MONTREAL—Sept. 6, 2012—Transcontinental Inc.’s revenues grew 8 percent in the third quarter, from $479.4 million to $517.0 million. This growth was driven primarily by the acquisition of Quad/Graphics Canada and Redux Media, among others, the volume generated from new printing contracts and the launches of new community newspapers in Quebec.

It was, however, mitigated by the expected reduction in sales in the Educational Book Publishing Group, due mainly to the end of the school reform in Quebec, the incentives granted at the renewal of certain printing contracts and the decrease in national advertising in community newspapers outside Quebec. Excluding acquisitions, divestitures and closures, the impact of the exchange rate and the paper component variance, organic revenue growth was negative by 3 percent in the third quarter.

Adjusted operating income was down 13 percent during the same period, from $57.1 million to $49.9 million. This decrease is mainly due to lower volume from educational book sales, as indicated above, as well as a soft national advertising market outside Quebec and incentives granted at the renewal of certain contracts. This decrease was partially offset by improved printing platform efficiency.

Net income applicable to participating shares declined 74 percent, from $31.5 million to $8.1 million. This decrease is mainly due to restructuring, integration and acquisition costs related to the acquisition of Quad/Graphics Canada, Inc., to net income from discontinued operations namely, one- and two-color book printing, and to the reduction in adjusted operating income. Excluding unusual items and discontinued operations, adjusted net income applicable to participating shares was down 23 percent, from $32.5 million to $24.9 million.

“The third quarter results demonstrate the resilience of our printing operations and the adverse impact of difficult market conditions on some niches in the Media Sector,” said François Olivier, president and CEO. “In the Printing Sector, the integration of Quad/Graphics Canada, Inc. progressed and we are on track to generate the anticipated synergies of more than $40 million over the next 18 months.

“In fact, starting in the fourth quarter, we will reap the benefits of this acquisition more significantly. We sold our remaining one- and two-color book printing assets and renewed several contracts with national retailers. We also recently extended contracts to print Rogers’ marketing products and magazines.

Olivier noted also that, ”although the Media Sector has been affected by the exceptional events that have lowered the results of the Educational Book Publishing Group, we continued to invest in the development of new products and services. The scope of our digital network was expanded through the acquisition of Redux Media and the partnership with Glacier‍ Media.

“We enriched the content of our platforms by acquiring all outstanding shares of the newspaper Métro Montréal and launching several mobile apps. In addition, the organization continues to generate significant cash flows and has a solid financial position. Over the next 12 to 18 months, our priorities will be to complete the integration of Quad/Graphics‍ Canada, Inc., to further invest in our multi-platform offering and to improve the Media Sector’s performance.“

Quarter Highlights

Sold the assets of one- and two-color book printing plants Transcontinental Gagné in Louiseville and Transcontinental Métrolitho in Sherbrooke, Quebec. Transcontinental Inc. plans to pursue its educational book printing activities in the four-color web printing niche in the Quebec, Canada and U.S. markets.

Extension to 2019 of contracts to print Rogers’ marketing products and magazines for a value of up to $250 million. These agreements follow in the wake of other contracts renewed since January 2012 with key accounts in various sectors of the retail industry in Canada. These contracts with retailers are valued at more than $1.5 billion and have terms of three to six years.

Ongoing development of Transcontinental Inc.’s digital and interactive activities with the acquisition of a majority stake in Redux Media, a leading online advertising network that specializes in real-time bidding, and by setting up a digital advertising representation partnership with Glacier Media, publisher of newspapers and business information products. In addition to expanding its digital network, the Corporation is providing new mobile applications, notably On the Table and P$ Mobile Service, an innovative remote parking payment solution for Stationnement de Montréal.

Purchase of all outstanding shares of the newspaper Métro Montréal. With this transaction the weekday paper will become a provider of local, national and international information across the various TC Transcontinental platforms, including the new morning show, Ça commence bien! produced by the Corporation’s television production house.

Highlights of the First Nine Months

For the first nine months of fiscal 2012, the revenues of Transcontinental Inc. grew 4 percent, from $1,47 billion to $1.52 billion. This increase is mainly due to the acquisition of Quad/Graphics Canada, Inc. and Redux Media, among others, to new contracts, notably with Canadian Tire, and to community-newspaper acquisitions in Quebec.

It was mitigated by the lower volume from the non-recurring revenue from the printing contract for the Canadian Census last year, by the erosion of demand in the Educational Book Publishing Group due to the end of the school reform in Quebec, by the soft national advertising market which affected community newspapers outside Quebec and by the incentives granted at the renewal of certain printing contracts.

Adjusted operating income was down 11 percent, from $166.6 million to $148.8 million, primarily due to the above-noted reasons, and to margin erosion stemming from competitive pressures in the local solutions market. Net income applicable to participating shares decreased, from $89.9 million to a loss of $131.4 million. This decrease is mainly due to an impairment of assets of $180.8 million, which is non-cash and non-operational.

The notices of re-assessment received from the federal and provincial tax authorities last February, totaling $58 million, which the Corporation is currently contesting, and the restructuring, integration and acquisition costs to integrate Quad/Graphics‍ Canada, Inc. also contributed to the decrease. Excluding unusual items and discontinued operations, adjusted net income applicable to participating shares was down 13 percent, from $100.8 million to $87.5 million.

About TC Transcontinental
TC Transcontinental creates marketing products and services that allow businesses to attract, reach and retain their target customers. The Corporation is the largest printer in Canada and the fourth-largest in North America. As the leading publisher of consumer magazines and French-language educational resources, and of community newspapers in Quebec and the Atlantic provinces, it is also one of Canada's major media groups. TC Transcontinental is also the leading door-to-door distributor of advertising material in Canada through its Publisac network in Quebec and Targeo in the rest of Canada. Thanks to a wide digital network of more than 3,500 websites, the Corporation reaches over 18.7 million unique visitors per month in Canada. TC Transcontinental also offers interactive marketing products and services that use new communication platforms supported by marketing strategy and planning services, database analytics, premedia, e-flyers, email marketing, custom communications and mobile solutions.

Source: TC.