Transcontinental Inc. announces its financial results for the first quarter of fiscal 2018

MONTREAL, QUEBEC(Marketwired - March 1, 2018) - Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B)

Highlights

• Revenues decreased by $1.9 million, or 0.4%, from $503.6 million to $501.7 million. Adjusted revenues, which exclude the accelerated recognition of deferred revenues related to the new agreement with Hearst, decreased by $41.7 million, or 8.3%, to $461.9 million. This decrease is mainly due to the sale of our media assets in Atlantic Canada and local and regional newspapers in Québec.
• Operating earnings increased by $61.1 million, from $62.4 million to $123.5 million. Adjusted operating earnings, which exclude an amount of $33.5 million for the accelerated recognition of deferred revenues net of accelerated depreciation related to the new agreement with Hearst, as well as restructuring and other costs (gains) and impairment of assets, increased by $4.8 million, from $61.3 million to $66.1 million, or 7.8%.
• Net earnings increased by $15.5 million, from $42.7 million to $58.2 million. Adjusted net earnings, which exclude the accelerated recognition of deferred revenues, accelerated depreciation, restructuring and other costs (gains) and impairment of assets, net of related taxes, as well as the impact of the U.S. tax reform (U.S. Tax Cuts and Jobs Act) on deferred tax, increased by $7.3 million, from $41.3 million to $48.6 million, or 17.7%.
• Maintained a solid financial position, with a net indebtedness ratio of 0.1x.
• Acquired Les Industries Flexipak Inc., a flexible packaging supplier located in Montréal.
• Concluded a new agreement with Hearst under which the Corporation will transfer to Hearst, effective April 2, 2018, the printing of the San Francisco Chronicle.
• Sold the Corporation's stake in CEDROM-SNi Inc.
• Sold 34 local and regional newspapers in Québec as well as their related web properties.
• The Board of Directors approved a 5% increase in the annual dividend, bringing it to $0.84 per share.

Transcontinental Inc. (TSX:TCL.A)(TSX:TCL.B) announces its results for the first quarter of fiscal 2018, which ended January 28, 2018.

"I am satisfied with our first quarter financial results, which show that our profitability has increased while we continue the transformation of our organization," said François Olivier, President and Chief Executive Officer of TC Transcontinental.

"In the printing division, the demand for our retailer-related service offering remained relatively stable. Furthermore, we implemented initiatives aimed at continuously optimizing our printing platform, namely the consolidation of our Québec newspaper printing plants. In addition, we will transfer to Hearst the operations of our California facility as of April 2018. Consequently, we will repatriate state-of-the art equipment to some of our Canadian plants, which will generate synergies mainly starting in 2019.

"In the packaging division, this year's first quarter results were mainly affected by timing differences in purchases at one of our plants, but we anticipate that organic sales growth in 2018 will be similar to 2017. In addition, we pursued in a very active manner a number of promising acquisition opportunities.

"In our Media Sector, we sold 34 local and regional newspapers during the quarter and continued to adjust our costs to our asset base. Overall, the Media Sector's activities performed well.

"Today, with our enviable financial position and significant cash flows, we are, more than ever, well positioned to accelerate the growth of our packaging business."

Financial Highlights

(in millions of dollars, except per share amounts)	Q1-2018		Q1-2017		Variation in %
Revenues	$	501.7	$	503.6	(0.4	)%
Adjusted Revenues(1)		461.9		503.6	(8.3	)
Operating earnings before depreciation and amortization		154.7		89.0	73.8
Adjusted operating earnings before depreciation and amortization(1)		91.0		87.9	3.5
Operating earnings		123.5		62.4	97.9
Adjusted operating earnings(1)		66.1		61.3	7.8
Net earnings		58.2		42.7	36.3
Net earnings per share		0.75		0.55	36.4
Adjusted net earnings(1)		48.6		41.3	17.7
Adjusted net earnings per share(1)		0.63		0.53	18.9

(1)	Please refer to the section entitled "Reconciliation of Non-IFRS financial measures" in this press release for adjusted data presented above.

2018 First Quarter Results

Revenues went from $503.6 million in the first quarter of 2017 to $501.7 million in the first quarter of 2018, a decrease of $1.9 million, or 0.4%. Excluding the $39.8 million favourable effect of the accelerated recognition of deferred revenues related to the new agreement with Hearst, adjusted revenues went from $503.6 million in the first quarter of 2017 to $461.9 million in the corresponding period in 2018, a decrease of 8.3%. In addition, excluding the unfavourable impact of the sales of newspapers and other media assets in 2017 related to the Corporation's strategy, as well as the unfavourable exchange rate effect, adjusted revenues decreased by only $7.8 million, or 1.7%. The increase in demand for our services to Canadian retailers, notably as a result of the additional contribution from the expanded agreement with Lowe's Canada, and the contribution from acquisitions in the packaging division and in the Media Sector partially offset the decline in volume due to the end of the printing of The Globe and Mail in the Maritimes and of La Presse, the decrease in revenues from unsold newspapers in the local and regional newspaper publishing niche in Québec and Ontario in the Media Sector and the timing differences in purchases at one of the packaging plants.

Operating earnings increased by $61.1 million, or 97.9%, from $62.4 million in the first quarter of 2017 to $123.5 million in the first quarter of 2018. This increase is mostly attributable to the favourable effect of the accelerated recognition of deferred revenues, the decrease in operating expenses resulting from the sale of media assets and cost reduction initiatives and the decrease in restructuring and other costs (gains) as a result of higher gains on the sale of certain activities in the Media Sector. Adjusted operating earnings increased by $4.8 million, or 7.8%, from $61.3 million in the first quarter of 2017 to $66.1 million in the first quarter of 2018. Excluding the $6.8 million favourable effect of the stock-based compensation expense as a result of the change in the share price in the first quarter of 2018 compared to the corresponding period in 2017and the unfavourable impact of the sales of newspapers and other media assets in 2017, adjusted operating earnings remained stable. The contribution from acquisitions and the favourable effect of cost reduction initiatives in the printing division and in the local and regional newspaper publishing activities in Québec and Ontario in the Media Sector were offset by the above-mentioned decrease in volume.

Net earnings increased by $15.5 million, from $42.7 million in the first quarter of 2017 to $58.2 million in the first quarter of 2018. This increase is mostly attributable to the increase in operating earnings, as explained above, partially offset by higher income taxes. On a per share basis, net earnings went from $0.55 to $0.75. Excluding the accelerated recognition of deferred revenues, accelerated depreciation, restructuring and other costs (gains) and impairment of assets, net of related income taxes, as well as the impact of the U.S. tax reform on deferred tax, adjusted net earnings increased by $7.3 million, or 17.7%, from $41.3 million in the first quarter of 2017 to $48.6 million in the first quarter of 2018. This increase is attributable to the increase in adjusted operating earnings, as explained above. On a per share basis, adjusted net earnings went from $0.53 to $0.63.

For more detailed financial information, please see the Management's Discussion and Analysis for the first quarter ended January 28, 2018 as well as the financial statements in the "Investors" section of our website at www.tc.tc

Outlook for 2018

In the printing division, we expect revenues from all our services to Canadian retailers to remain relatively stable in fiscal 2018 compared to the same period in 2017. At the end of the second quarter, we will no longer see the additional contribution of the expanded agreement with Lowe's Canada to our results, since it has already contributed for four quarters. As a reminder, this agreement concluded in January 2017 remains in effect until 2022. Also, we have renewed our multi-year agreement with Loblaw Companies Limited. This agreement includes the full range of our retailer-related services as well as additional volume for in-store marketing product printing, premedia services and commercial printing. In all the other printing verticals, we expect that our revenues will continue to be affected by a decline in volume caused by the same trends in the advertising market. We will also stop printing the San Francisco Chronicle in April 2018 pursuant to a new agreement with Hearst. However, we will continue to offer them transition services until October 31, 2018. To partially offset the decline in volume, we will continue with our operational efficiency initiatives and will benefit from the closure of our Transcontinental Métropolitain plant starting in the second quarter.

In our packaging division, the acquisition of Les Industries Flexipak Inc., completed in October 2017, will contribute to results in fiscal 2018. We also rely on our sales force to continue developing our sales funnel and we expect other sales to materialize in order to achieve an organic sales growth similar to 2017.

In the Media Sector, our revenues will be affected in 2018 by the sale of our media assets related to local and regional newspapers. We expect that our Business and Education Group will continue to perform well by diversifying its revenues in niches that depend little on advertising. We will continue to adjust our cost structure based on the volume of activity as we sell our local and regional newspapers.

The Corporation also expects that the U.S. tax reform, enacted on December 22, 2017, will have a positive effect on its results for the remainder of fiscal 2018 and for the years to come mainly as a result of the reduction in the U.S. federal statutory corporate income tax rate. The significance of this positive effect will depend on the proportion of the Corporation's earnings generated by its U.S. subsidiaries, which cannot be forecasted with certainty.

To conclude, in fiscal 2018, we expect to continue generating significant cash flows from our operating activities and to maintain our excellent financial position, which should enable us to continue making acquisitions to support our transformation into packaging.

Reconciliation of Non-IFRS Financial Measures

The financial information has been prepared in accordance with IFRS. However, financial measures used, namely the adjusted revenues, the adjusted operating earnings, the adjusted operating earnings before depreciation and amortization, the adjusted net earnings, the adjusted net earnings per share, the net indebtedness and the net indebtedness ratio, for which a complete definition is presented in the Management's Discussion and Analysis for the first quarter ended January 28, 2018, and for which a reconciliation is presented in the following table, do not have any standardized meaning under IFRS and could be calculated differently by other companies. We believe that many of our readers analyze the financial performance of the Corporation's activities based on these non-IFRS financial measures as such measures may allow for easier comparisons between periods. These measures should be considered as a complement to financial performance measures in accordance with IFRS. They do not substitute and are not superior to them.

We also believe that the adjusted revenues, the adjusted operating earnings before depreciation and amortization, the adjusted operating earnings, that takes into account the impact of past investments in property, plant and equipment and intangible assets, and the adjusted net earnings are useful indicators of the performance of our operations. Furthermore, management also uses some of these non-IFRS financial measures to assess the performance of its activities and managers.

Regarding the net indebtedness and net indebtedness ratio, we believe that these indicators are useful to measure the Corporation's financial leverage and ability to meet its financial obligations.

Reconciliation of revenues - First quarter
	Three months ended
(in millions of dollars)	January 28, 2018			January 29, 2017
Revenues	$	501.7		$	503.6
Accelerated recognition of deferred revenues(1)		(39.8	)		-
Adjusted revenues	$	461.9		$	503.6

Reconciliation of operating earnings - First quarter
	Three months ended
(in millions of dollars)	January 28, 2018			January 29, 2017
Operating earnings	$	123.5		$	62.4
Accelerated recognition of deferred revenues(1)		(39.8	)		-
Accelerated depreciation(1)		6.3			-
Restructuring and other costs (gains)		(25.9	)		(2.3	)
Impairment of assets		2.0			1.2
Adjusted operating earnings	$	66.1		$	61.3
Depreciation and amortization		31.2			26.6
Accelerated depreciation(1)		(6.3	)		-
Adjusted operating earnings before depreciation and amortization	$	91.0		$	87.9

Reconciliation of net earnings - First quarter
	Three months ended
	January 28, 2018						January 29, 2017
(in millions of dollars, except per share amounts)	Total			Per share			Total			Per share
Net earnings	$	58.2		$	0.75		$	42.7		$	0.55
Accelerated recognition of deferred revenues(1), net of related taxes		(29.4	)		(0.38	)		-			-
Accelerated depreciation(1), net of related taxes		4.6			0.06			-			-
Restructuring and other costs (gains), net of related taxes		(22.8	)		(0.29	)		(2.3	)		(0.03	)
Impairment of assets, net of related taxes		1.4			0.02			0.9			0.01
Impact of the U.S. tax reform on deferred tax		36.6			0.47			-			-
Adjusted net earnings	$	48.6		$	0.63		$	41.3		$	0.53

Reconciliation of net indebtedness
(in millions of dollars, except ratios)	As at January 28, 2018				As at October 29, 2017
Long-term debt	$	348.2			$	348.3
Current portion of long-term debt		-				-
Cash		(313.7	)			(247.1	)
Net indebtedness	$	34.5			$	101.2
Adjusted operating earnings before depreciation and amortization (last 12 months)	$	399.8			$	396.7
Net indebtedness ratio		0.1		x		0.3		x

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