Transcontinental Completes Capri Packaging, Sun Media Acquisitions, Increases Earnings in Q2

MONTREAL—June 6, 2014—Transcontinental Inc.'s revenues decreased by 3.8 percent in the second quarter, from $517.8 million to $498.2 million, primarily due to the soft advertising market, which continues to influence its marketing products printing, as well as our newspaper and magazine publishing operations. This decrease was partially offset by the sustained performance of its flyer printing operations and by new contracts in both operating sectors.

Adjusted operating earnings rose from $54.2 million to $58.5 million. This performance is due to the company-wide optimization of its cost structure and its highly efficient printing platform. It was partially offset by the soft advertising market as mentioned above. Net earnings applicable to participating shares increased from $25.3 million, or $0.32 per share, to $34.7 million, or $0.45 per share. This improvement is due to lower restructuring and other costs, an increase in adjusted operating earnings and lower financial expenses, partially offset by an increase in income taxes. Adjusted net earnings applicable to participating shares grew 12.9 percent, from $32.6 million, or $0.42 per share, to $36.8 million, or $0.47 per share.

"We are proud to have completed two major transactions that position TC Transcontinental strategically for the future," said François Olivier, president and CEO. "With the acquisition of the Capri Packaging assets, we have taken a first step into the flexible packaging market, which is a new promising growth area for the corporation. In addition, the acquisition of the Sun Media weekly newspapers in Quebec strengthens our assets in this market, while ensuring our ability to evolve our local solutions offering in Quebec. Furthermore, our second quarter results were satisfactory. Despite the pressure we are experiencing in the advertising market, the increase in our profitability demonstrates the effectiveness of our strategy, namely strengthening existing assets and developing new revenue sources."

Olivier added: "For coming quarters, our excellent financial position combined with our ability to generate significant cash flows gives us the flexibility we need to integrate our recent acquisitions, continue our transformation and invest in the future of the corporation."

Supplementary Information

• On April 10, 2014, the corporation announced the renewal of its normal course issuer bid from April 15, 2014 to April 14, 2015.
• On May 3, 2014, the corporation completed the acquisition of the assets of Capri Packaging, a producer of flexible packaging, operating two facilities located in Clinton, MO. The acquisition will add about US$72 million to TC Transcontinental's revenues. As part of the transaction, the seller, Schreiber Foods has signed a 10-year agreement to secure Capri Packaging as a strategic supplier of flexible packaging, which represents about 75 percent of Capri's total revenues.
• On May 5, 2014, TC Transcontinental Printing signed a multi-year agreement with Postmedia Network to print The Gazette, published primarily for the Montreal market. This agreement builds on our recent announcement to print the Vancouver Sun and the Calgary Herald. The contract with Postmedia Network will take effect in August 2014.
• On May 8, 2014, the corporation completed a private financing agreement for an amount of $250 million of 3.897 percent senior unsecured notes due in 2019. Transcontinental Inc. intends to use the net proceeds to repay outstanding indebtedness under its revolving credit facility and for general corporate purposes.
• On June 1, 2014, Transcontinental Inc. completed the acquisition of the weekly newspapers owned by Sun Media in Quebec and their related Web properties. Under the terms of the agreement with the Competition Bureau, the corporation must put some weekly newspapers up for sale. Despite this requirement, the transaction will add about $20 million to the operating earnings before amortization of Transcontinental Inc. and further advance the local multiplatform offering for businesses and communities.

Highlights of the First Half
In the first half of 2014, TC Transcontinental's revenues decreased 4.4 percent, from $1,043.4 million to $997.5 million. This decrease stems primarily from the soft advertising market in its two operating sectors. Adjusted operating earnings grew 4.4 percent, from $97.7 million to $102.0 million, due to the optimization of its cost structure. This increase was partially offset by the factors mentioned above. Net earnings applicable to participating shares rose from $41.0 million, or $0.52 per share, to $51.9 million, or $0.67 per share. This improvement is due to lower financial expenses, a decrease in restructuring and other costs, as well as an increase in adjusted operating earnings, partially offset by an increase in income taxes. Excluding unusual items, adjusted net earnings applicable to participating shares grew 7.1 percent, from $59.0 million, or $0.76 per share, to $63.2 million, or $0.81 per share.

Outlook—A Note from the Company
New agreements to print magazines, newspapers and marketing products signed since the start of the fiscal year will reduce the impact of difficult market conditions in these niches. We believe that our printing offering to major retail chains will remain relatively stable and we are continuing to improve our point-of-purchase marketing services. The Printing Sector will also continue to optimize its cost structure and operations in order to maintain its longer-term profitability.

The Media Sector should continue to benefit from cost-structure optimization initiatives and the new flyer-distribution agreements that will help stabilize our operating margin and reduce the impact of difficult conditions in the advertising market. We will also continue to invest in the development and commercialization of new digital products. The acquisition of the Sun Media weekly papers in Quebec should also enable us to strengthen our media assets and improve our offering in local markets.

The corporation completed the transaction to acquire the assets of Capri Packaging in order to start a new growth vector in flexible packaging. We have initiated the operational integration process, modifying our organizational structure and creating a packaging division headed by a team of senior executives with outstanding capabilities in manufacturing. The long-term agreement with the seller, Schreiber Foods, Inc., will secure most of the revenues for this division. In the coming months we will be implementing a plan to build the loyalty of our existing customers and attract new ones to ensure our success in this promising niche.

We have secured additional long-term financing to give us the financial flexibility required to pursue our transformation and execute our growth strategy. Given our excellent financial position, we will continue our balanced approach to capital management, which allows us to reduce our debt, pay dividends and invest in our transformation focused on our core competencies. We will also keep on developing internal projects and evaluating strategic acquisitions to maintain our position in our niches, while developing our new packaging growth vector to ensure the long-term success and profitability of the business.

About Transcontinental Inc.
Largest printer and a leading provider of media and marketing activation solutions in Canada, TC Transcontinental creates products and services that allow businesses to attract, reach and retain their target customers. The corporation specializes in print and digital media, the production of magazines, newspapers, books and custom content, mass and personalized marketing, interactive and mobile applications, door-to-door distribution, and also manufactures a range of flexible packaging products in the United States.

Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B)(TSX:TCL.PR.D), including TC Transcontinental, TC Media, TC Transcontinental Printing and TC Transcontinental Packaging, has over 9,000 employees in Canada and the United States, and revenues of C$2.1 billion in 2013.

Source: Transcontinental.