Transcontinental Reports 12.5% Adjusted Net Earnings Drops for Q2 of Fiscal '16

MONTREAL — June 10, 2016 — Transcontinental Inc. announces its results for the second quarter of Fiscal 2016, which ended April 30, 2016.

“We experienced a more difficult second quarter in terms of profitability, as certain optimization initiatives that were implemented will only impact our results in upcoming quarters”, said François Olivier, President and Chief Executive Officer of TC Transcontinental. “In our printing division, the second half of the year should be more favorable, since we also have gained market share with some new customer wins in recent months. Our Media Sector already begun to benefit from the efficiency measures implemented during the quarter. As for our packaging division, we have a solid sales funnel which continues to improve, we have invested to increase our production capacity and remain very active on the acquisition front.”

“Finally, we have a sound financial position and continue to generate significant cash flows that will enable us to pursue our transformation.”

2016 Second Quarter Results
Revenues for the second quarter of 2016 increased from $490.5 million to $497.2 million. The contribution from the acquisition of Ultra Flex Packaging and the appreciation of the U.S. dollar against the Canadian dollar more than offset the decrease in existing operations. In the printing division, the contribution of previously announced new contracts and the growth of the in-store marketing product niche were more than offset by the decline in advertising spending in several segments and t he loss of a U.S. customer early in 2015. However, most of the printing volume stemming from Canadian retailers remained relatively stable. The decrease in the packaging division is mainly attributable to the loss of a customer as a result of its sale and to inventory balancing at an important customer. In the Media Sector, the decline in advertising revenues continued to significantly impact the newspapers in the Local Solutions Group.

Adjusted operating earnings went from $61.6 million to $56.2 million i n the second quarter of 2016, a decrease of 8.8%. The contribution from the acquisition of Ultra Flex Packaging, the favorable exchange rate effect and the optimization of the cost structure in the Media Sector only partially offset the decrease in existing operations and the investments made to increase capacity and support the growth strategy of the packaging division.

Adjusted net earnings attributable to shareholders of the Corporation decreased 12.5%, from $39.1 million, or $0.50 per share, to $34.2 million, or $0.44 per share. This decrease is mainly due to lower adjusted operating earnings. Net earnings attributable to shareholders of the Corporation went from $81.2 million, or $1.04 per share, to $5.4 million, or $0.07 per share. This decrease is attributable to several unusual items totaling more than $80 million, including the gain on the sale of the consumer magazine publishing activities and the reversal of the provision for multi-employer pension plans in the second quarter of 2015, as well as the asset impairment charge related to the newspapers in the Atlantic provinces in the second quarter of 2016.

Other Highlights

• On March 10, 2016, TC Transcontinental announced the appointment of Jacynthe Côté, corporate director, to the board of directors of the Corporation.
• On April 22, 2016, TC Transcontinental released its latest Corporate Social Responsibility Report entitled “Guide. Mobilize. Achieve.”, marking the completion of the 2013-2015 three-year plan. It also released its 2016-2018 Corporate Social Responsibility Plan entitled “Driving Sustainable Results”. To learn more about TC Transcontinental’s commitments and achievements with respect to corporate social responsibility, please refer to the 2015 Report and the 2016-2018 Plan, which are available on the Corporation’s website at www.tc.tc/socialresponsibility.
• On May 17, 2016, the Corporation won in the “Business Transfer” category at the Mercuriades Awards.
• On May 30, 2016, TC Transcontinental announced that it divested its assets in the province of Saskatchewan. The transaction included the sale of its 13 local newspapers and associated web properties, as well as some commercial printing equipment and related book of business in Saskatchewan. The Saskatoon printing plant will remain in operation for a transition period, after which it will close.

Highlights of the First Half
For the first half of 2016, TC Transcontinental’s revenues grew 1.6%, from $980.2 million to $996.1 million. The acquisition of Ultra Flex Packaging and the appreciation of the U.S. dollar against the Canadian dollar more than offset the decrease in existing operations. In the printing division, the contribution of previously announced new contracts and the growth of the in-store marketing product niche were m ore than offset by the decline in advertising spending in several segments as well as the loss of a U.S. customer and a Canadian retailer early in 2015. However, most of the printing volume stemming from Canadian retailers remained stable. In the packaging division, both the loss of a customer as a result of its sale and inventory balancing at an important customer had an unfavorable impact. In the Media Sector, the decline in advertising revenues continued to have a significant effect on the newspapers in the Local Solutions Group. In addition, distribution activities were impacted by the exit of a retailer from the Canadian mar ket in 2015.

Adjusted operating earnings went from $117.3 million to $113.3 million in the first half of 2016, a decrease of 3.4%. The contribution from the acquisition of Ultra Flex Packaging, the favorable exchange rate effect and the optimization of the cost structure in the printing division and the Media Sector only partially offset the decrease in existing operations and the investments made to increase capacity and support the growth strategy of the packaging division.

Adjusted net earnings attributable to shareholders of the Corporation decreased 2.2%, from $77.3 million, or $0.99 per share, to $75.6 million, or $0.97 per share. This decrease is mainly due to lower adjusted operating earnings, partially mitigated by a decrease in adjusted income taxes and net financial expenses. Net earnings attributable to shareholders of the Corporation went from $119.1 million, or $1. 53 per share, to $42.7 million, or $0.55 per share. This decrease is attributable to several unusual items totaling close to $90 million, including the gain on the sale of the consumer magazine publishing activities, the reversal of the provision for multi-employer pension plans and the gain on the sale of a building in the first half of 2015, as well as the asset impairment charge related to the newspapers in the Atlantic provinces in the second quarter of 2016.

For more detailed financial information, please see Management’s Discussion and Analysis for the second quarter ended April 30, 2016, as well as the financial statements in the “Investors” section of our website at www.tc.tc.

Outlook for 2016
Flyer printing volume is expected to remain relatively stable during the second half of 2016. In addition, the success of our in-store marketing product offering for retailers and the net impact of new contracts, including the contract to print the Toronto Star, should act as positive catalysts during the second half of the year. However, these items should be offset by the continued negative impact of the advertising market on our traditional magazine, newspaper and marketing product printing activities. In addition, the positive impact of the non-recurring contract to print the Census of Canada will end after the third quarter. Lastly, we will continue to improve our operational efficiency in order to offset the decline in revenues.

With respect to our flexible packaging offering, we will continue developing new business opportunities and qualifying our products with customers to drive growth in this division. However, the loss of a customer as a result of its sale in early 2016 and our recent investments to increase our capacity and support our development strategy will continue to have an unfavorable impact on organic growth in the second half of 2016.

Within the Media Sector, the significant impact of the transformation of the advertising market should continue to affect our newspaper publishing activities. However, the impact of the optimization of our cost structure should enable us to stabilize our adjusted operating earnings during the second half of 2016.

Lastly, we expect to continue genera ting significant cash flows during the next quarters, and our excellent financial position should permit us to continue our transformation in the flexible packaging industry. We will maintain our disciplined acquisition app roach in this promising market in order to invest in quality assets that meet our strategic criteria.

Reconciliation of Non-IFRS Financial Measures
Financial information has been prepared in conformity with IFRS. However, certain measures used in this press release do not have any standardized meaning under IFRS and could be calculated differently by other companies. We believe that many readers analyze our results based on certain non-IFRS financial measures because such measures are normalized for evaluating the Corporation's operating performance. Management uses such non-IFRS financial information to evaluate the performance of its operations and managers. These measures should be considered in addition to, not as a substitute for or superior to, measures of financial performance pre pared in accordance with IFRS.

Dividend
The Corporation’s board of directors declared a quarterly dividend of $0.185 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on July 21, 2016 to shareholders of record at the close of business on July 5, 2016.

About TC Transcontinental
Canada’s largest printer with operations in print, flexible packaging, publishing and digital media, TC Transcontinental's mission is to create products and services that allow businesses to attract, reach and retain their target customers. Respect, teamwork, performance and innovation are strong values held by the Corporation and its employees. The Corporation's commitment to all stakeholders is to pursue its business and philanthropic activities in a responsible manner. Transcontinental Inc. (TSX: TCL.A TCL.B), known as TC Transcontinental, has close to 8,000 employees in Canada and the United States, and revenues of C$2.0 billion in 2015.

Source: TC Transcontinental.