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- Growth of 4% in revenues and adjusted operating
income before amortization ; excluding impact of negative
foreign exchange rate, growth of 7% in both cases.
- A restructuring charge and goodwill write-off
related to direct mail activities in the United States—mainly
non-cash items that have no impact on cash assets and cash
flow from operating activities—reduced net income
from $120.6 million in 2007 to $7.9 million in 2008.
- Increase of 11% in adjusted net income1, which
excludes asset impairment, restructuring costs and unusual
adjustments to income taxes.
- Increase of 15% in adjusted1 earnings per share;
excluding the negative foreign exchange rate impact, increase
of 19%.
- Acquisitions of ThinData, a Canadian leader in
permission-based email marketing; Rastar, a U.S. direct
marketing company; and Redwood Communications, a North American
leader in custom communications.
- Continued digital development of the Media sector,
including the launch of weblocal.ca,
a Canada-wide search site for local communities.
- Successful launch of Vita, Canada’s
French-language counterpart of More magazine.
- Contract extension to 2028, with addition of
two new regions, to print the Globe and Mail, for
total revenues of $1.7 billion; plus six-year contract with
Rogers Communications valued at $35 - $40 million per year
to print all of Rogers’ magazines, starting in 2009.
- Multi-year agreement, in effect since April 2008
and valued at about $25 million a year, to print flyers
for Shoppers Drug Mart-Pharmaprix all across Canada.
- Corporation purchased 2.9 million shares, totalling
$49 million, under its share buy-back program.
- Excellent financial position with a view to continued
growth.
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.
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For information:
Media
Nessa Prendergast
Director, Media Relations
Transcontinental Inc.
Telephone: (514) 954 2809
nessa.prendergast@transcontinental.ca
Financial Community
Jennifer F. McCaughey
Director, Investor Relations
Transcontinental Inc.
Telephone: (514) 954 2821
jennifer.mccaughey@transcontinental.ca
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