Transcontinental Posts Income Declines on Revenues Increase

MONTREAL—June 7, 2012—Transcontinental Inc. increased its revenues by 6 percent in the second quarter, from $498.7 million to $529.4 million, driven primarily by the acquisition of Quad/Graphics Canada, as well as numerous acquisitions and launches of community newspapers in Quebec, and new contracts such as Canadian Tire. This growth was mitigated primarily by the sale of its black-and-white book printing business, destined for U.S. exports, to Quad/Graphics last September and by lower volume from the non-recurring revenue from the printing contract for the Canadian Census last year.

Highlights:

For this same period, adjusted operating income decreased 7 percent, from $60.2 million to $55.8 million, driven primarily by a new provincial legislation in Quebec under Bill 88 that imposes greater recycling fees on publishers, lower volume from the non-recurring revenue from the printing contract for the Canadian Census last year and lower volume from its educational book publishing group due to the end of the school reform in Quebec. This decrease was partially offset by synergies from the use of its most productive assets.

Net income applicable to participating shares decreased from $32.7 million to a loss of $106.2 million. This decrease is mainly due to an impairment of assets of $180.0 million, in the newspaper and magazine activities of the Media sector, which is non-cash and non-operational. Excluding unusual items and discontinued operations, adjusted net income applicable to participating shares decreased 9 percent, from $39.1 million to $35.4 million.

Operating Highlights of the Quarter

• Since January 2012, renewed and expanded six multiyear agreements valued at over $1.5 billion in revenues with major Canadian retail customers in the food, hardware, general merchandise and pharmaceutical verticals.

• Closed the transaction for the indirect acquisition of the shares of Quad/Graphics Canada, Inc. and rapidly announced the reorganization of its print operations across Canada. About half of the Quad/Graphics’ Canada, Inc. facilities have been closed so far. The integration is on track to deliver more than $40 million in synergies as expected.

• On Feb. 16, Remi Marcoux stepped down as executive chairman of the board and Isabelle Marcoux was elected chair of the board; on Feb. 2, Alain Gignac was appointed chief marketing activation officer, a new senior management position with responsibility for the integration of print product and services, print and digital media, and interactive marketing solutions for major accounts; on May 9, Natalie Larivière resigned as president of TC Media, effective end of June.

• Expanded its digital advertising representation by signing numerous deals and partnerships with Cinoche.com, PoolExpert, Hearst Digital Media and Homes Publishing Group as well as acquiring a majority stake in Redux Media, a leading online advertising network. TC Transcontinental now reaches over 18.7 million unique monthly visitors per month in Canada or two thirds of all online Canadians, through more than 3,500 websites.

• Broadened its extensive community newspaper network in Quebec by acquiring Édition Beauce and Courrier Frontenac and strengthened its position as the leader in the supplemental educational publishing market in Quebec by the acquisition of the shares of Les Éditions Caractère.

Highlights for the Six-month Period

• For the first six-month period of fiscal 2012, Transcontinental’s revenues increased 1 percent, from $1,013.5 million to $1,025.3 million.
• Adjusted operating income decreased 9 percent, from $108.9 million to $98.8 million. This decrease was primarily due to the non-recurrence of the Canadian Census contract, margin erosion from competitive pressures in the local solutions marketplace and new provincial legislation in Quebec under Bill 88 that imposes greater recycling fees on publishers.
• Net income applicable to participating shares decreased from $58.4 million to a loss of $139.5 million. This decrease is mainly due to an impairment of assets of $180.8 million, which is non-cash and non-operational and to notices of re-assessment received from the federal and provincial tax authorities last February, totaling $58 million, for which the Corporation is currently contesting. Excluding unusual items and discontinued operations, adjusted net income applicable to participating shares decreased 8 percent, from $67.9 million.

About TC
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.

Source: TC.