Business News

Transcontinental Reports Continued Good Performance in Second Quarter and Maintains Focus on its Development

Friday 13. June 2008 - Growth of 2% in revenues; excluding the foreign exchange rate impact, growth of 5%.

Decrease of 2% in adjusted operating income before amortization; excluding the foreign exchange rate impact, growth of 5%.
Increase of 11% in net income; on a per-share basis, net income rose from $0.40 to $0.46, a 15% increase.
Increase of 2% in adjusted net income before unusual items; on a per-share basis, adjusted net income grew 5%, from $0.41 to $0.43, but growth of 15% excluding the foreign exchange rate impact.
Signing of exclusive six-year contract, valued at $35 – $40 million a year, to print Rogers Communications’ magazines starting in February 2009; this is all new business for Transcontinental.
In digital, acquisitions of ThinData, a Canadian leader in permission-based email marketing, and Acquizition.biz, the most important marketplace in Canada for buying and selling businesses; launch of recipefeast.com, the English version of the highly successful site recettes.qc.ca.; and introduction of mobile technology to the site thehockeynews.com.
Announcement of investments totalling $80 million in two printing plants in the Montreal area.
Closure of the Halifax Daily News and launch of the free Metro daily in Halifax, in partnership with Metro International and Torstar.
Extra $150 million added to the Corporation’s bank credit facility, increasing it to $550 million.
DBRS maintains its BBB (high) rating and improves the trend for the Corporation’s Senior Unsecured Debentures.

Transcontinental posted another good performance in the second quarter ended April 30, 2008, despite the negative impact of the foreign exchange rate. The Corporation kept its focus on growth by continuing to invest in new technologies and developing its digital media while making strategic acquisitions. Transcontinental should thus continue to profit from its integrated marketing service offering for existing and new customers. The Corporation is in an excellent financial position for further growth, with a net funded debt to total capitalization ratio of 34% at April 30, 2008. Unless there is a sudden rise in the Canadian dollar, the negative impact of the foreign exchange rate should diminish over the course of the fiscal year since the Canadian dollar achieved parity with the U.S. dollar in the third quarter of 2007, before exceeding it in the fourth quarter.

“We are reaping the rewards of our investments in new technologies and our company-wide continuous improvement efforts,” said François Olivier, President and Chief Executive Officer of Transcontinental. “We have again succeeded in offsetting the negative impact of the exchange rate, and have done so despite the tougher conditions in the media and print industries. Our solid balance sheet and significant cash flows from operations put us in an excellent position to serve our customers by developing growth platforms to meet their new marketing requirements, as illustrated by the integration of ThinData, the Canadian leader in permission-based email marketing, into our service offering. We are also looking for acquisitions in targeted niches across North America.”

Financial Highlights
In the second quarter of 2008, Transcontinental recorded consolidated revenues of $595.1 million, compared to $584.7 million in the same quarter in 2007, an increase of 2%. Adjusted operating income before amortization was down 2%, from $92.8 million to $90.7 million. Excluding the exchange rate fluctuations between the Canadian dollar and its U.S. and Mexican counterparts, which had a negative impact of $19.3 million on revenues and $6.5 million on adjusted operating income before amortization, growth would have been 5% in revenues and adjusted operating income before amortization. The acquisition of PLM Group, the fourth largest printer in Canada, as well as a series of other smaller but strategic acquisitions in 2007 and 2008, as well as higher sales in certain segments, more than offset lower demand in other segments and additional investments in the Media sector.

Net income grew by 11%, from $34 million for the second quarter of 2007 to $37.7 million in 2008; on a per-share basis, net income rose 15%, from $0.40 to $0.46. Adjusted net income, which does not take into account unusual items arising from asset impairment, restructuring costs and unusual adjustments to income taxes, was up 2%, from $34.4 million to $34.9 million; on a per-share basis, adjusted net income rose 5%, from $0.41 to $0.43. This higher percentage reflects the positive impact of the Corporation’s normal course issuer bid. Excluding the foreign exchange rate impact, adjusted net income would have been $0.47 per share, up 15% over the second quarter of 2007.

In the first six months of fiscal 2008, consolidated revenue rose 3%, from $1.16 billion to $1.19 billion, while adjusted operating income before amortization increased 3%, from $168.5 million to $173.1 million. Excluding the foreign exchange rate impact, which reduced revenues by $40.3 million and adjusted operating income before amortization by $11.8 million, growth would have been 6% and 10%, respectively.

Net income rose 32%, from $54.2 million in the first half of 2007 to $71.8 million in 2008. This increase is mainly due to a decrease in the tax rate, an increase in adjusted operating income before amortization and a favourable change in unusual items. On a per-share basis, net income increased 38%, from $0.63 to $0.87. Adjusted net income, which does not take into account unusual items arising from asset impairment, restructuring costs and unusual adjustments to income taxes, rose 6%, from $59.5 million to $63.3 million. On a per-share basis, adjusted net income rose 10%, from $0.70 to $0.77.

Excluding the adverse effect of the exchange rate in the first half of 2008, earnings per share would have been $0.84, up 20% over the first half of 2007. This measure provides a good indicator of the Corporation’s operating performance in the first half of the year.

For more detailed financial information, please see Management’s Discussion and Analysis for the Second Quarter Ended April 30, 2008 at www.transcontinental.com, under “Investors.”

Operating Highlights
The main operating highlights for the second quarter of 2008 are as follows.

Transcontinental signed an exclusive six-year contract to print all of Rogers’ magazines, which number more than 70 and include Châtelaine, Maclean’s, L’actualité and Canadian Business. This contract, which takes effect on February 1, 2009 and is valued at $35 to $40 million a year, is new business for Transcontinental. It will make Transcontinental Canada’s biggest catalogue and magazine printer.
On March 11, Transcontinental acquired ThinData Inc., the Canadian leader in permission-based email marketing. ThinData’s services fit in perfectly with Transcontinental’s strategy to increase its integrated marketing services, including the expansion of its capabilities in premedia, database management and analysis, direct marketing and cybermarketing, so that the Corporation can offer unique business solutions to its customers and its media assets.
The digital and interactive front saw several other strategic developments, including the acquisition of the most important marketplace in Canada for buying and selling businesses, Acquizition.biz, a site that also makes it easier to find strategic or financial partners; the launch of recipefeast.com, the English-language counterpart of the highly popular site recettes.qc.ca, which receives more than a million visitors a month; and the introduction of mobile technology (cell phone, BlackBerry and Apple iPhone) to the popular thehockeynews.com site, which receives close to 400,000 visitors a month and has a readership of over two million for its print publication.
On February 11, Transcontinental stopped publishing the Halifax Daily News and on February 14 launched a Metro free daily paper in partnership with Metro International S.A. and Torstar Corporation. Management considers this type of publication to be more suited to the Halifax market.
In February, Transcontinental announced two investment projects totalling $80 million in the Montreal area. The first, for $60 million, is to expand the Transcontinental Transmag newspaper printing plant and buy state-of-the-art technology so that customers, including Transcontinental Media (which prints about 40 of its newspapers at the plant), can put colour on every page of their publications, a key requirement for growth in the newspaper industry. The second investment, of $20 million, will be used to buy the latest equipment for Transcontinental Interweb Montreal on Montreal’s South Shore, which prints catalogues and magazines.
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.

Environment
Transcontinental plans to continue exercising its leadership in sustainable development in its own way: by mobilizing its employees and taking concrete action. Achievements in the second quarter include FSC (Forest Stewardship Council) certifications for nine plants in Canada and the United States. This certification indicates that a product is environmentally and socially responsible, and 18 of our facilities are now FSC certified. Furthermore, since February 20, Publi-Sac has been manufactured using biodegradable plastic. For this, the Distribution Group management chose the oxo-biodegradable technology developed by EPI, a Vancouver firm that has pioneered innovative environmental technologies. Lastly, Transcontinental and its Métro daily paper have agreed to be the official sponsors of Montreal’s National Environment Show, the largest event of its kind in Quebec, which will be held in the Old Port of Montreal from June 13 – 15, 2008.

Further recognition: in March, Jantzi Social Index (JSI), a market-capitalization socially weighted common stock index consisting of 60 Canadian companies that pass a set of broadly based environmental and social rating criteria, announced that Transcontinental remains a member of its select group of companies. Transcontinental has been on the index since March 2004.

Corporate Affairs
On May 14, Transcontinental received an additional commitment of $150 million from its banking syndicate for a period of 364 days. This arrangement brings the Corporation’s credit facility to $550 million and gives management greater flexibility to pursue its growth strategy. In addition, due to the Corporation’s sound financial position and operating performance, rating agency DBRS has maintained Transcontinental’s BBB (high) rating and improved the trend for its Senior Unsecured Debentures.

On May 23, Transcontinental announced the appointment of François R. Roy to the Corporation’s board of directors. Mr. Roy has in-depth experience as a senior financial executive in the media, print and marketing sectors which will provide unique insight and perspective that will help Transcontinental’s growth. Mr. Roy has a long history of involvement in the Montreal arts community. He is currently Vice Principal, Administration and Finance, at McGill University.

Transcontinental’s senior executives continue to stand out in Canadian society and its business community. After receiving the Order of Canada in 2007, Rémi Marcoux, the executive chairman of the board and founder of Transcontinental, was recently named an Officer of the National Order of Quebec, the most prestigious distinction awarded by the Quebec government. In addition, Isabelle Marcoux, vice chair of the board of Transcontinental and vice president of Corporate development, was elected to the board of Rogers Communications, a major communications and media coporation. In 2007, she was named one of Canada’s “Top 40 Under 40.”

Dividend
At its June 12, 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 July 25, 2008 to shareholders of record at the close of business on July 7, 2008. On an annual basis, this represents a dividend of $0.32 per share.