Transcontinental Again Generates Organic Revenue and Profit Growth

MONTREAL—June 8, 2011—Transcontinental’s revenues increased 1 percent in the second quarter of 2011, from $510.0 million to $514.7 million. This increase was primarily due to a number of new contracts, most notably from the expanded relationship with The Globe and Mail. Excluding acquisitions, divestitures and closures, the impact of the exchange rates and the paper component variance, organic revenue growth was 3 percent, with all three sectors contributing.

Similarly, adjusted operating income increased 5 percent, from $58.3 million to $61.3 million, representing the eighth consecutive quarter of year-over-year growth, while the adjusted operating income margin increased from 11.4 percent to 11.9 percent. This increase was mainly due to the contribution from new contracts coupled with the synergies associated with the use of our most productive assets and continued efficiency improvement initiatives in the printing sector. It was partially compensated by continued strategic investments in the media and interactive sectors and more intense competitive pressures in some of our niches.

Net income applicable to participating shares went from $67.0 million to $33.0 million. This decrease is mainly due to a gain related to the discontinuance of direct mail operations in the United States in the second quarter of 2010. Excluding unusual items, adjusted net income applicable to participating shares increased 18 percent, from $34.1 million to $40.1 million.

“I am pleased with our second quarter results, especially with the fact that we have generated organic revenue and profit growth for the fifth consecutive quarter in an industry in profound transformation. This demonstrates our ability to manage our operations efficiently, grow market share and transform our business to better respond to our customers’ evolving needs,” said François Olivier, president and CEO.

“I strongly believe that our service offering including print, media and interactive solutions is unmatched in the marketplace and represents a unique multiplatform offering. Furthermore, our solid financial position provides us with the flexibility to pursue our transformation,” added Olivier.

Highlights for the Six-month Period

In the first six months of fiscal 2011, Transcontinental’s revenues increased 2 percent, from $1,021.6 million to $1,044.8 million. Excluding acquisitions, divestitures and closures, the impact of the exchange rates and the paper component variance, organic revenue growth was 3 percent, with all three sectors contributing.

Similarly, adjusted operating income increased 5 percent, from $105.6 million to $111.1 million, while the adjusted operating income margin increased from 10.3 percent to 10.6 percent.

Net income applicable to participating shares went from $93.2 million to $59.2 million. Excluding unusual items, adjusted net income applicable to participating shares increased 14 percent, from $61.2 million to $70.0 million.

Other Second Quarter Financial Highlights

• Free cash flow from operations increased significantly as cash flow from operations, before changes in non-cash operating items, increased 16 percent, from $65.8 million to $76.1 million and capital expenditures decreased, from $26.3 million to $8.4 million.

• As at April 30, 2011, the ratio of net indebtedness (including the securitization program) to adjusted operating income before amortization was 1.66x, as compared to 1.82x as at October 31, 2010 and 2.08x as at April 30, 2010. The ratio of net indebtedness to adjusted operating income before amortization is slightly above the target of 1.5x set by management. Over the next few quarters, it should get closer to the target given the expected increase in cash flow generation and reduction in capital expenditures.

• In the quarter, Transcontinental also prepaid and cancelled its $100 million term credit facility with Caisse de dépôt et placement du Québec and set up a new two-year $200 million securitization program. In addition, Transcontinental intends to prepay and cancel its five-year term loan of $50 million with SGF Rexfor Inc. next month.

For more detailed financial information, please see “Management’s Discussion and Analysis for the Second Quarter Ended April 30, 2011” at www.transcontinental.com, under “Investors.”

Operating Highlights

• Transcontinental continued to invest in new digital products and services. It partnered with Undertone, a leading provider of display, high impact and video advertising solutions, in order to expand its digital advertising representation offering. This agreement enables Transcontinental to provide Canadian advertisers with a full range of digital video ad solutions, namely pre-roll advertising spots in over 25 million online video clips played every month in Canada. In addition, Transcontinental was selected as the official eBook solution provider for the Canadian Booksellers Association (CBA). This partnership will empower book retailers to create new revenue streams and bring more titles to market faster, with easy to use, intuitive software designed with online bookstores in mind.

• Transcontinental continued to build on its existing assets. It announced that it will close two printing plants, one in Quebec and one in Manitoba, which will optimize its printing network further. In both cases, production will be transferred to larger plants which have benefitted from investments in the recent past. Transcontinental also continued to grow its newspaper publishing operations by acquiring the weekly newspaper Journal Nouvelles Hebdo in Dolbeau-Mistassini, Quebec and by launching five community newspapers in Quebec.

• In the quarter, Transcontinental also concluded a four-year agreement with Canadian Tire, which will add about $30 to $40 million in incremental revenues on an annual basis, starting in January 2012. This new agreement makes Transcontinental Canadian Tire’s leading provider of marketing solutions across Canada.

• Transcontinental also launched its second Sustainability Report, based on the Global Reporting Initiative (GRI). The full web report, a downloadable pdf as well as a highlights brochure are all available at www.transcontinental-ecodev.com.

About Transcontinental
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 Mexico, and 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 top media groups. Thanks to a wide digital network of more than 300 websites, the company reaches over 10 million unique visitors per month in Canada. 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.

Transcontinental (TSX: TCL.A, TCL.B, TCL.PR.D) has 10,500 employees in Canada, the United States and Mexico, and reported revenues of C$2.1 billion in 2010. For more information about the Corporation, please visit www.transcontinental.com.

Source: Transcontinental.