Transcontinental Reports Gains for Fiscal Year Despite Q4 Loss

MONTREAL—December 11, 2008—Transcontinental kept its momentum in the fourth quarter and ended fiscal 2008 with adjusted earnings per share of $1.73, compared to $1.50 in 2007, up an appreciable 15%. Adjusted net income, which excludes asset impairment, restructuring costs and unusual adjustments to income taxes, is a good indicator of the Corporation’s operating performance. Excluding the negative impact of the foreign exchange rate, adjusted earnings per share would have been $1.78, an increase of 19% over 2007. The good performance of most of the Corporation’s business segments, along with a decrease in the tax rate and interest rates, largely offset the negative impact of the financial crisis on the Corporation’s direct mail operations in the United States, the average rise in the Canadian dollar compared to its U.S. counterpart, and strategic investments in the Media sector.

“I am proud of our 2008 results, which again demonstrate our ability to grow in tough economic times,” said François Olivier, President and Chief Executive Officer of Transcontinental. “We are now reaping the benefits from our investments in our network of printing plants over the past several years, from the development of our brands and their deployment on our digital platforms, as well as from our efforts to continually improve efficiency and reduce costs.”

“I am convinced that we have the assets, organizational capability, growth strategy, values and people to stay in the top ranks of our industry in North America. Conditions look difficult for 2009, but we will benefit from the start of our contracts to print Rogers Communications’ magazines and the San Francisco Chronicle daily, as well as from the full-year impact of the Shoppers Drug Mart-Pharmaprix flyer-printing contract, acquisitions made in 2008 and the launch of new products in the Media sector. I have also asked our people to immediately identify ways we could reduce our production capacity if the economic situation demands it and our action plan is ready.”

To conclude, Mr. Olivier said that “we are going to continue to focus on our four priority areas of growth: an integrated marketing communications service offering, an offering of content and solutions on multiple platforms aimed at Canadian women and local communities, and an integrated print service offering for publishers.”

The Corporation is in an excellent financial position to continue its growth, with a net indebtedness to total capitalization ratio of 39% as at October 31, 2008, at the low end of the range of 35% - 50% set by management.

New Operating Structure
Transcontinental’s primary mission is to help its customers reach and retain their target consumers. Management therefore plans to accelerate the development of new services in advertising personalization and new communication platforms, while strengthening and broadening its core services in publishing and printing. To support this growth strategy, management introduced a new operating structure in early fiscal 2009 and created the Marketing Communications Sector. This third sector (the other two being Media and Printing) will concentrate on the design and development of new marketing services. Initially it will cover the following activities: data analysis, premedia, permission-based email marketing, personalized marketing, custom communications and the printing of marketing products. The Marketing Communications Sector has annualized revenues of about $400 million.

Financial Highlights
For the 12-month period ended October 31, 2008, consolidated revenues rose 4%, from $2.33 billion to $2.43 billion. Adjusted operating income before amortization also rose 4%, from $350.4 million to $364.5 million. Excluding the exchange rate effect between the Canadian dollar and its U.S. and Mexican counterparts, which reduced revenues by $47.9 million and adjusted operating income before amortization by $11.7 million, revenues would have grown 7% and adjusted operating income before amortization would have grown 7% as well.

Net income declined from $120.6 million in 2007 to $7.9 million in 2008. This is mainly due to the restructuring charge related to the consolidation of direct mail activities in the United States, close to two thirds of which had no impact on cash, and to the write-off of goodwill related to these activities, which represents a non-cash charge that has no effect on liquidity or cash flow from the Corporation’s operating activities. Net of applicable income taxes, these unusual items totalled $141.8 million in the fourth quarter of 2008, or $1.74 per share. On a per-share basis, net earnings decreased from $1.42 to $0.10.

Adjusted net income, which excludes asset impairment, restructuring costs and unusual adjustments to income taxes, rose 11%, from $127.2 million to $141.6 million. On a per-share basis, adjusted net earnings increased 15%, from $1.50 to $1.73; the higher percentage reflects the positive impact of the Corporation’s share buy-back program. Excluding the negative impact of the foreign exchange rate in fiscal 2008, adjusted earnings per share would have been $1.78, up 19% over 2007. This measurement is a good indicator of the Corporation’s operating performance in 2008.

In the fourth quarter, Transcontinental’s consolidated revenues rose 6% to $653 million, versus $618 million in the same quarter in 2007. Adjusted operating income before amortization increased 8%, from $100.6 million to $108.7 million. Excluding the fluctuations in the exchange rate between the Canadian dollar and its U.S. and Mexican counterparts, which raised revenue by $1.6 million and adjusted operating income before amortization by $2.1 million, revenue growth would have been 5% and adjusted operating income before amortization would have been 6%.

Net income decreased from $38.6 million to a loss of $94.2 million; on a per-share basis, it dropped from earnings of $0.46 to a loss of $1.17. Adjusted net income, which excludes asset impairment, restructuring costs and unusual adjustments to 2007 income taxes, rose 22%, from $39.3 million to $48 million; on a per-share basis, adjusted net earnings increased 26%, from $0.47 to $0.59. Excluding the impact of the foreign exchange rate, adjusted earnings per share would have grown 21%.

For more detailed financial information, please see Management’s Discussion and Analysis for the Fiscal Year Ended October 31, 2008, as well as the complete financial statements, at www.transcontinental.com, under “Investors.”

Operating Highlights
Here are the main operating highlights, by sector, for fiscal 2008.

Media Sector

• Transcontinental invested about $8 million in the strategic development of the Media sector, focusing on digital technology. One of the highlights was the launch of weblocal.ca, an online search site for finding and reviewing local businesses and their products and services in communities across Canada. Highly interactive, weblocal.ca generates its content from information shared by users who can also access reviews on other websites, create a profile, set up a community of friends and neighbours and use the mobile search functions. This initiative reflects management’s plan to increase local advertising revenues, a key area of growth for Transcontinental.

  Fiscal 2008 was also marked by a series of promising digital initiatives. These included the purchase of Acquizition.biz, the most important marketplace in Canada for buying and selling businesses; the launch of the website recipefeast.com, the English-language version of the very popular site recettes.qc.ca, which now receives close to a million visitors a month; making the popular site thehockeynews.com, which has over 300,000 visitors a month and whose print publication has a readership of more than two million, available via mobile devices (cell phones, Blackberry and Apple’s iPhone); and the acceleration of the migration of all community newspapers to a digital platform through a partnership with NewspaperDirect and its leading-edge technology in digital publishing.

  Today, Transcontinental has over 120 Web sites whose revenues have increased 30% in the past year, from $13 million in 2007 to $17 million in 2008.

• In addition to creating new services, Transcontinental’s strategy is to strengthen and broaden its core publishing activities. This led to the launch in September 2008 of Vita, the French-language version of Canada’s More magazine, aimed at women in the 40+ demographic. Building on the unprecedented success of More since it was introduced in March 2007, Vita reinforces Transcontinental Media’s position as Canada’s leading consumer magazine publisher, with more than 40 titles.
• Free daily papers are a response to new channels for information delivery, particularly for a young and active readership. Transcontinental pioneered this format in Canada when it introduced the Métro paper in Montreal. In February 2008, in partnership with Metro International S.A. and Torstar Corporation, Transcontinental launched the free Metro daily in Halifax, Nova Scotia. The launch followed on the decision to stop publishing the Halifax Daily News, as management believed a free publication was better suited to the Halifax market.

Marketing Communications Sector

• Once an acquisition has been completed, the challenge is to integrate the new business quickly, efficiently and smoothly. One of the highlights of 2008 was the successful integration of PLM Group and its 500 employees, which surpassed our forecasts for synergies. Located in Toronto, this Canadian direct marketing leader enriches the service offering in the Marketing Communications Sector and offers its clients database analytics, premedia, email marketing and custom communications services.
• In March, Transcontinental acquired ThinData Inc., Canada’s leader in permission-based email marketing. ThinData’s offering fits in perfectly with Transcontinental’s strategy to add new services and offer its customers unique business solutions and the growth objectives foreseen for the first year have been exceeded. ThinData works with Canada’s largest marketing and advertising agencies and has received many awards and prizes for its innovative campaigns. It has about 60 employees.
• In September, Transcontinental announced that it had acquired Rastar, Inc, a U.S. direct marketing company headquartered in Salt Lake City. Rastar specializes in interactive database marketing and variable data digital printing, which enable fully personalized marketing communications. Rastar has annual revenues of about US$50 million, a workforce of about 350 employees and a customer base that includes many Fortune 500 companies.
• Custom communications are an important part of Transcontinental’s marketing communications offering. In 2008, the Corporation first set up Transcontinental Custom Communications, a joint venture with Seven Squared, one of the top custom publishing agencies in the United Kingdom. Then in November, Transcontinental bought Redwood Custom Communications, a leading North American company headquartered in Toronto. Redwood provides turnkey publishing with personalized content for print and digital channels. Its services include data compilation, research and results tracking, and database marketing. The business has about 130 employees.
• Outsourcing is an asset for Transcontinental’s future growth, made possible by the Corporation’s great business credibility. In 2008, Loblaw joined other major Canadian retailers who have decided to outsource their premedia services to Transcontinental.

Printing Sector

• With respect to business development, in February Transcontinental signed an exclusive six-year contract to print all of Rogers’ 70 magazines, including Châtelaine, Maclean’s, L’actualité and Canadian Business. This contract, valued at $35 million - $40 million a year, is all new business for Transcontinental and takes effect on February 1, 2009. Transcontinental plans to develop this promising partnership by offering Rogers all of its products and services.

  Furthermore, in August, Transcontinental announced that it had signed a $1.7 billion contract to print the Globe and Mail until 2028 in most of the Globe and Mail’s main markets in Canada. This contract takes effect at the end of 2010. In addition to extending the agreements covering the Atlantic provinces, Quebec and Ontario, the contract adds two new markets: Alberta and British Columbia. For Transcontinental, the contract will bring in annual revenues of about $95 million, of which some $25 million is new business. In 2009 and 2010, Transcontinental will invest about $200 million to set up an innovative platform to print newspapers and flyers across Canada, a first in the country.

  Lastly, since April, Transcontinental has been printing the flyers for Shoppers Drug Mart-Pharmaprix all across Canada. This multi-year arrangement, valued at about $25 million a year, represents new business for which the Corporation does not have to make any additional investments.

• Transcontinental is continually investing in its future. As part of its Evolution 2010 business project, the Corporation is investing an average of $120 million a year in capital expenditures, close to double the industry average as a percentage of revenues. This amount excludes capital spending for outsourcing projects like the San Francisco Chronicle, which Transcontinental will start printing in 2009. In 2008, the Corporation invested $273 million in fixed assets.

  Major projects included $60 million to expand the Transcontinental Transmag newspaper printing plant, in Montreal, and purchase state-of-the-art equipment that allows customers to put colour on every page of their publications; a further $20 million to buy sophisticated equipment for magazine and catalogue printing at Transcontinental Interweb Montréal; and another $20 million to buy additional equipment to print the Rogers magazines at its printing plant in Owen Sound, Ontario.

• The extreme volatility of the financial markets has had a major impact on the marketing programs of the financial institutions that form a major segment of Transcontinental’s direct mail customers in the United States. In October 2008, the Corporation approved a plan to restructure its direct mail activities in the United States by consolidating production from its Warminster, PA facility to its facility in Hamburg, PA. The transfer will be completed in January 2009 and will entail the elimination of 460 jobs. The annual production capacity of Transcontinental Direct USA will drop from 5 billion direct mail pieces to 3.5 billion. This consolidation will result in more efficient production, allowing Transcontinental to maintain its leadership position in this industry in the U.S. The Transcontinental Direct USA subsidiary is one of the Corporation’s 14 operating groups; it accounts for about 10% of the Corporation’s consolidated revenues.

Sustainable Development
Transcontinental has exercised its leadership in sustainable development in its own way, that is, by mobilizing its employees and taking concrete action. Highlights in 2008 included the following:

• FSC certification of nine more of its facilities in Canada and the U.S. by the Forest Stewardship Council, which certifies that a product meets its social and environmental standards. This brings to 18 the number of Transcontinental’s plants that are FSC certified;
• The launch of an oxo-biodegradable Publi-Sac (Ad-Bag). The bag is now made of biodegradable plastic thanks to a technology developed by EPI, a pioneering Vancouver firm in the field of environmental technologies;
• Sponsorship of the National Environment Show, the biggest event of its kind in Quebec, held at the Old Port of Montreal;
• The publication of four new issues of the magazine Vision durable, whose mission is to help business people take action to support sustainable development;
• The print customer mail-out of eight issues of Éco-Questions, a newsletter that addresses issues, trends and terminology as they relate to the environment and printing;
• And the participation of Transcontinental, with four other major corporations, in a project to improve energy efficiency in cooperation with the Association québécoise de la maîtrise de l’énergie.

These initiatives show that Transcontinental management is very committed to sustainable development, and management is convinced that all of these efforts will help it create long-term value for employees, customers and shareholders. Furthermore, this commitment has been recognized, once again, by Jantzi Social Index® (JSI), an index composed of a select group of 60 Canadian corporations chosen for their performance in the area of social and environmental responsibility. Transcontinental has been on this index since 2004.

Reconciliation of Non-GAAP Financial Measures
Financial data have been prepared in conformity with Canadian Generally Accepted Accounting Principles (GAAP). However, certain measures used in this press release do not have any standardized meaning under GAAP and could be calculated differently by other companies. The Corporation believes that certain non-GAAP financial measures, when presented in conjunction with comparable GAAP financial measures, are useful to investors and other readers because that information is an appropriate measure for evaluating the Corporation's operating performance. Internally, the Corporation uses this non-GAAP financial information as an indicator of business performance, and evaluates management's effectiveness with specific reference to these indicators. These measures should be considered in addition to, not as a substitute for or superior to, measures of financial performance prepared in accordance with GAAP.

The following table reconciles GAAP financial measures to non-GAAP financial measures.

Corporate Affairs
On November 14, 2008, Transcontinental announced the immediate appointment of Brian Reid as president of the Printing Sector. This sector comprises services to retailers and publishers of newspapers, magazines, books and catalogues, direct mail activities in the United States and operations in Mexico. It has about 8,500 employees and annualized revenues of over $1.5 billion. Mr. Reid now also sits on the Corporation’s Executive Committee. He joined Transcontinental in 1992 and from 2003 was the Senior Vice President, Catalogue and Magazine Printing Group, Canada and the United States. Mr. Reid is based in Toronto.

Normal Course Issuer Bid – Fiscal 2008
On December 17, 2007, the Corporation was authorized to purchase for cancellation on the open market, between December 20, 2007 and December 19, 2008, up to 3,333,994 of its Class A Subordinate Voting Shares, representing 5% of its 66,679,889 issued and outstanding Class A Subordinate Voting Shares as of December 10, 2007, and up to 845,271 of its Class B Shares, representing 5% of its 16,905,432 issued and outstanding Class B Shares as of December 10, 2007.

As at October 31, 2008, the Corporation purchased 2,894,100 of its Class A Subordinate Voting Shares at a weighted average price of $16.77 for a total consideration of $48.5 million. It also bought 8,000 of its Class B Shares at a weighted average price of $18.34 for a total consideration of $0.2 million. The purchases were made in the normal course of business at market prices through the facilities of the Toronto Stock Exchange in accordance with the requirements of the Exchange.

The Corporation did not buy back any shares in the normal course of business in the fourth quarter.

Dividend
At its December 11, 2008 meeting, the Corporation’s Board of Directors declared a quarterly dividend of $0.08 per share on Class A Subordinate Voting Shares and Class B Shares. These dividends are payable on January 23, 2009 to shareholders of record at the close of business on January 5, 2009. On an annual basis, this represents a dividend of $0.32 per common share.

Additional Information
Upon releasing its fiscal 2008 results, Transcontinental will hold a conference call for the financial community today at 4:15 p.m. (ET). Media may hear the call in listen-only mode or tune in to the simultaneous audio broadcast on Transcontinental’s website, which will be archived for 30 days. For Media requests for information or interviews, please contact Nessa Prendergast, Director, Media Relations, at 514-954-2809.

About Transcontinental
Transcontinental provides printing, publishing and marketing services that deliver exceptional value to its clients and provide a unique, integrated platform for them to reach and retain their target audiences. Transcontinental is the largest printer in Canada and sixth-largest in North America. It is also the country’s leading publisher of consumer magazines and French-language educational resources, its second-largest community newspaper publisher, and its digital platform delivers unique content through more than 120 Web sites. Its Marketing Communications Sector provides advertising services and marketing products using new communications platforms supported by database analytics, premedia, email marketing, and custom communications. Transcontinental is a growing company with a culture of continuous improvement and financial discipline, whose values, including respect, innovation and integrity, are central to its operation.

Transcontinental (TSX: TCL.A, TCL.B) has approximately 15,000 employees in Canada, the United States and Mexico, and reported revenues of C$2.4 billion in 2008. For more information about the Corporation, please visit www.transcontinental.com.

Note: This press release contains certain forward-looking statements concerning the future performance of the Corporation. Such statements, based on the current expectations of management, inherently involve numerous risks and uncertainties, known and unknown. We caution that all forward-looking information is inherently uncertain and actual results may differ materially from the assumptions, estimates or expectations reflected or contained in the forward-looking information, and that actual future performance will be affected by a number of factors, many of which are beyond the Corporation’s control, including, but not limited to, the economic situation, exchange rate, energy costs, increased competition, the Corporation’s capacity to implement its strategic plan and cost-reduction program and make and integrate acquisitions into its activities. The risks, uncertainties and other factors that could influence actual results are described in the Management’s Discussion and Analysis and Annual Information Form.

The forward-looking information in this release is based on current expectations and information available as of December 11, 2008. The Corporation’s management disclaims any intention or obligation to update or revise any forward-looking statements unless otherwise required by the Securities Authorities.