Transcontinental Posts ‘Best Operating Performance in Its History’

MONTREAL—Dec. 8, 2010—Transcontinental increased its profitability in the fourth quarter compared to a solid fourth quarter in 2009 and, for fiscal 2010 as a whole, had the best operating performance in its history. This brings to six the number of consecutive quarters in which the corporation has improved its operating income, excluding unusual items, year over year. It also achieved positive organic growth in revenues and profits on an annual basis.

Highlights for fiscal 2010

• Growth of 16.3 percent in adjusted operating income, from $217.1 million to $252.5 million, and organic growth of 14.9 percent.

• Remarkable growth in net income applicable to participating shares, from a loss of $82.3 million to income of $166.6 million.

• Growth of 18.7 percent in adjusted net income applicable to participating shares, from $133.5 million to $158.5 million.

“I am very proud of our results for the fourth quarter and all of fiscal 2010, as they clearly show that we have the strategy, the disciplined management, the financial foundation and the people we need to continue our growth,” said François Olivier, president and CEO. “In the past year we have strengthened our core business and invested in new services that meet the emerging needs of our customers, while also improving synergies and generating greater profitability.

“I am very optimistic about the future,” Olivier continued. “Having started printing The Globe and Mail on our new Canada-wide network of hybrid presses in October, the three major capital projects in which we have invested some $700 million since 2007 are now fully operational. This will lead to significant cash inflows in 2011 and thereafter. We will use this to further reduce our debt levels and continue investing in the development of new digital and interactive marketing services.”

Financial Highlights

In the fourth quarter ended October 31, 2010, Transcontinental’s consolidated revenues were stable at $570 million despite a strong fourth quarter in 2009, with organic growth of 1.3 percent. Adjusted operating income was up 3.8 percent, from $85.0 million to $88.2 million, with organic growth of 7.3 percent.

Net income applicable to participating shares rose from $43.1 million in 2009 to $44.5 million in 2010. Adjusted net income applicable to participating shares, which excludes unusual items, was up 20 percent, from $52.4 million to $62.9 million.

For the 12-month period ended Oct. 31, 2010, the corporation reported organic growth in revenues of 1.2 percent. This growth stems from new printing contracts and a recovery in advertising spending in its newspapers and magazines. Consolidated revenues were down 3.6 percent, from $2.2 billion to $2.1 billion, mainly due to divestitures or closures of plants and publications, the impact of the exchange rate and the paper effect.

Adjusted operating income was up 16.3 percent, from $217.1 million to $252.5 million. This increase is mainly due to strict controls on costs and the asset portfolio as well as greater efficiency, which largely offset the corporation’s strategic investments; those investments had an immediate impact on earnings, notably in the digital services developed by the Media Sector. Organic growth in adjusted operating income was 14.9 percent.

Net income applicable to participating shares rose $248.9 million, from a loss of $82.3 million in 2009 to income of $166.6 million in 2010. This remarkable growth stems mainly from a significant increase in operating income and a gain related to the discontinuance of direct mail operations in the United States. Adjusted net income applicable to participating shares, which excludes unusual items, rose 18.7 percent, from $133.5 million to $158.5 million.

For more detailed financial information, please see Management’s Discussion and Analysis for the fiscal year ended Oct. 31, 2010 and the complete financial statements on our website at www.transcontinental.com, in the Investors section.

Operating Highlights

In 2010, Transcontinental continued to implement its unique growth strategy based on two intertwined components: build the new and strengthen traditional core activities. This strategy reflects its mission to help businesses and advertisers identify, reach and retain their target consumers. Transcontinental is defining itself as a provider of custom marketing solutions on both digital and print communication platforms.

Here, in light of that strategy, are the main operating highlights of fiscal 2010.

Build the New

Transcontinental’s future growth will be based on its ability to offer customers Web-based advertising personalization and interactive marketing communications solutions that meet their new business needs. Fiscal 2010 has a number of examples of actions and achievements in this area.

• To emphasize its goal of becoming the leading provider of interactive marketing solutions in North America, management changed the name of the Marketing Communications Sector to the Interactive Sector and began integrating the entities acquired in recent years. Now grouped under Transcontinental Interactive, these business units are in a better position to combine their forces and offer customers integrated marketing strategy and planning services, data analytics, premedia, online direct marketing, one-to-one marketing, mobile marketing and custom communications, as well as the digital printing of marketing products.

• The development and marketing of mobile applications is a major growth area for Transcontinental. Two acquisitions enriched this offering in 2010: LIPSO, a leading Canadian provider of integrated mobile solutions, and Vortex Mobile (one day after the fiscal year end), a provider of integrated mobile marketing solutions designed to build consumer loyalty. Note that two promising agreements were signed with the Toronto Transit Commission, the third largest public transit system in North America, and the Société de transport de Laval, north of Montreal, to provide custom text-message services for riders.

• Thanks to the power of its brands and its outstanding content, Transcontinental Media continued to expand its presence on the Web and in mobile applications. Today it represents some 150 websites and portals that reach an average of nine million unique visitors a month. Furthermore, the mobile applications launched for Canadian Living, ELLE Canada, ELLE Québec, Investment Executive, Les Affaires, Finance et Investissement, Métro, Weblocal.ca and The Hockey News have been hugely popular with users. In 2010, The Hockey News mobile app thn.mobi hit the one-million user mark, making it one of the top mobile downloads in Canada. Total revenues for digital operations amounted to $36.8 million in 2010, up 33.8 percent over 2009. Complementing its revenue stream from ad-page sales, Transcontinental now also sells advertising programs that integrate print products and digital applications from the Media Sector, and the rest of company, through its 360 Solutions sales team.

• Transcontinental Media launched a digital advertising representation house, an agency that enhances the offering for advertisers in Media magazines (especially women’s magazines) through exclusive partnerships with the largest online content providers in North America. Transcontinental has thus improved its offer by adding websites that represent name brands in Canada and the United States, thereby giving its advertisers more ways to reach potential customers on Internet.

• The integrated solutions offering for local communities in Canada is one of the Corporation’s main growth areas and combines a broad selection of print and digital channels. In Web-based services in 2010, Transcontinental launched the pre-shopping site dealstreet.ca and its French-language counterpart, publisac.ca. These sites deliver thousands of retail discount coupons every day to consumers, specifically tailored to their geographic locations in Canada. Also in 2010, the Canada-wide search engine weblocal.ca launched the first online reputation management tool for advertisers who subscribe to its services. Transcontinental also has other sites aimed at local communities, including merkado.ca and inmemoriam.ca. In addition, community papers can be viewed on smart devices (iPhone, iPad, etc.)

Strengthen our Traditional Core

Transcontinental also continued to win market share in its publishing and printing operations where it is a leading player in Canada.

• Communities value their local papers for the information and advertising they provide. Transcontinental contributes greatly to the development and enhancement of Canada’s community papers by investing in editorial content, graphic design and state-of-the-art printing equipment. In 2010, we added six Quebec weeklies and their websites (Point de vue Sainte-Agathe, Point de vue Mont-Tremblant and Journal Le Nord in the Laurentians, Abitibi Express, for Val-d’Or and Amos, Courrier Saguenay, and Rive-Sud Express, in Longueuil) to our portfolio of papers. The total number of Transcontinental newspapers in Canada is now 175. Note also the excellent performance of Métro, which is consolidating its position as the most-read weekday paper on the Island of Montreal.

• Transcontinental is Canada’s largest publisher of consumer magazines, with some 40 highly regarded publications that have a loyal following of more than 11 million readers a month, most of them women. In 2010 these magazines continued to refine their content and graphic design to make them more relevant and attractive to the major communities of interest they serve. They also grouped their advertising offer to reflect communities of interest. Along with their websites and mobile applications, they added activities such as the organization of specialized events and the development of a TV component. In 2010, Transcontinental launched Canada’s first French-language bookzine: PREMIUM – l’intelligence en affaires, a high-end bi-monthly management publication that complements the Corporation’s portfolio of business publications. Combining the best of both book and magazine, PREMIUM is available online, on newsstands and by subscription.

• Printing is one of the Corporation’s core competencies and Transcontinental has always been known for its technological innovation and efficiency. Since 2007, the Corporation has invested some $700 million in property, plant and equipment, primarily in three major projects that are now all up and running. After completing the first of these—the plant to print the San Francisco Chronicle in Fremont, California—and the second—modernization of the Transcontinental Transmag plant in Montreal in 2009—our Canada-wide network of hybrid presses to print newspapers and flyers is now also fully operational since October 2010. That project was undertaken to fulfil a new 18-year contract worth $1.7 billion, including $25 million in new business each year, with The Globe and Mail. With this unique network of hybrid presses Transcontinental will achieve important synergies and efficiency gains, while The Globe and Mail and retail customers will benefit from top-notch print quality, as well as formatting and colour options that are unequalled in Canada. Transcontinental will reap the full benefit of these investments in the years ahead.

• In line with its strategy to focus on its core operations and develop its Web-based products and services, in 2010 Transcontinental sold almost all of its direct mail operations in the United States to IWCO Direct, a U.S. company headquartered in Minnesota, for net proceeds of $105.7 million. The facilities were located in Warminster and Hamburg in Pennsylvania, in Fort Worth, Texas, and in Downey, California. Transcontinental is still the leader in direct marketing in Canada.

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. In addition, its digital platforms deliver unique content through more than 150 websites. Transcontinental also offers interactive marketing products and services that use new communications 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: Financial release.