December 6, 2016 Last Updated 10:01 am

Transcontinental reports 1% increase in revenue for 2016 thanks to acquisitions in the packaging division, appreciation of U.S. dollar

MONTREAL, Quebec – December 6, 2016  – Transcontinental Inc. announces its results for fiscal 2016, which ended October 31, 2016.

Fiscal 2016 Highlights

  • Revenues increased 0.9%.
  • Adjusted operating earnings before depreciation and amortization increased 3.0%.
  • Adjusted net earnings attributable to shareholders of the Corporation increased 5.1%.
  • Net earnings attributable to shareholders of the Corporation per share decreased 43.8%
  • Maintained a solid financial position, with a net indebtedness ratio of 0.8x.
  • Signed a five-year agreement to print the Toronto Star, which took effect in July 2016.
  • Acquired Robbie Manufacturing, a flexible packaging supplier located in Lenexa, Kansas.
  • Acquired Flexstar Packaging, a first flexible packaging acquisition in Canada.
  • Amendment to the normal course issuer bid (NCIB) of the Corporation to increase the maximum number of Class A Subordinate Voting Shares that it may repurchase from 1,000,000 to 2,000,000 shares. Under its current NCIB, as of November 30, 2016, the Corporation has repurchased 701,590 of its Class A Subordinate Voting Shares at a weighted-average price of $17.42, for a total cash consideration of $12.2 million.

“I am very proud of our 2016 results”, said François Olivier, President and Chief Executive Officer of TC Transcontinental. “We successfully continued the transformation of TC Transcontinental while recording the highest adjusted net earnings attributable to shareholders of the Corporation in the organization’s 40 years of history. Our employees can be proud of their work and performance.”

“The printing division had another excellent year. The start of printing of the Toronto Star demonstrates the renewed interest in our unique newspaper printing outsourcing model. In addition, we continued to expand our business relationships with retailers and implement measures to enable the optimal use of our network. In the Media Sector, the difficult market realities that are still prevailing led us to significantly reduce our cost structure. Furthermore, we disposed of certain assets that were no longer in line with our priorities. As for the packaging division, I am pleased with the sustained pace of our progress. On an annualized basis, this division’s revenues more than doubled and now stand at about 15% of consolidated revenues. The acquisitions of Robbie Manufacturing and Flexstar Packaging were carefully carried out according to our strategic criteria. We are convinced that the initiatives deployed in the packaging division to strengthen our sales force will contribute to the realization of several business opportunities with our already well-established sales funnel.”

“Lastly, with our solid financial position and our significant cash flow, we are well positioned to achieve our growth ambitions in the flexible packaging industry.”

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Preamble

The Corporation revised its organizational structure to combine its services offered to retailers within the printing division. As a result, door- to-door distribution and premedia services have been transferred under the responsibility of the Printing & Packaging Sector. Accordingly, the comparative data for our operating sectors have been restated to reflect these changes.

2016 Fourth Quarter Results

Revenues for the fourth quarter of 2016 went from $540.1 million to $555.6 million, an increase of 2.9%. The contribution from acquisitions in the packaging division and the appreciation of the U.S. dollar against the Canadian dollar more than offset the loss of revenues related to disposals and closures in the Media Sector and the decrease in revenues from existing operations. In the printing division, flyer printing volume remained stable and proved once again that this marketing tool is considered essential by retailers to drive traffic to the store. The printing of the Toronto Star, which started in July 2016, as well as door-to-door distribution activities and premedia services, for their part, partially offset the negative impact of the decline in advertising spending in several segments and the completion of the contract to print Canada’s census form. In the packaging division, revenues from existing operations increased slightly compared to the fourth quarter of 2015. In the Media Sector, the decline in advertising revenues continued to have a negative effect on the results of local newspapers.

Adjusted operating earnings went from $87.8 million to $107.4 million in the fourth quarter of 2016, an increase of 22.3%. The acquisitions, the favourable exchange rate effect and higher organic growth offset the above-mentioned decline in revenues from existing operations. The increase in adjusted operating earnings from existing operations is attributable to ongoing cost reduction initiatives in the printing division and the Media Sector and the decrease of $7.4 million in stock-based compensation expense as a result of the change in the share price in the fourth quarter of 2016 compared to the corresponding quarter in 2015. In the packaging division, adjusted operating earnings from existing operations remained stable. Despite the favourable impact of the stock-based compensation expense, adjusted operating earnings would have increased 12.7%.

Adjusted net earnings attributable to shareholders of the Corporation increased 26.4%, from $60.6 million, or $0.78 per share, to $76.6 million, or $0.99 per share. This increase is mostly attributable to an improvement in adjusted operating earnings, partly offset by an increase in adjusted income taxes. Net earnings attributable to shareholders of the Corporation went from $100.2 million, or $1.28 per share, to $57.7 million, or $0.75 per share. This decrease is mostly explained by the adjustment to deferred tax assets in the United States and the reversal of financial expenses resulting from notices of assessments recorded in the fourth quarter of 2015.

Fiscal 2016 Results

In 2016, TC Transcontinental’s revenues grew 0.9%, from $2,002.2 million to $2,019.5 million. The contribution from acquisitions in the packaging division and the appreciation of the U.S. dollar against the Canadian dollar more than offset the loss of revenues related to disposals and closures in the Media Sector and the decrease in revenues from existing operations. In the printing division, aside from the loss of a U.S. customer in 2015, flyer printing volume remained stable and proved once again that this marketing tool is considered essential by retailers to drive traffic to the store. Previously announced new contracts, in particular the contract to print the Toronto Star, which started in July 2016, and the contract to print Canada’s census form, which ended in the second quarter of 2016, partially offset the negative impact of the decline in advertising spending in several segments. In the packaging division, the decrease is due to an adjustment to the demand from Transcontinental Capri’s main customer and the loss of a customer as a result of its sale. In the Media Sector, the decline in advertising revenues continued to have a negative effect on the results of local newspapers.

Adjusted operating earnings went from $276.7 million to $283.4 million, an increase of 2.4%. The acquisitions and the favourable exchange rate effect more than offset the decrease in adjusted operating earnings from existing operations. The lower organic growth is due to the above-mentioned decline in revenues and the investments made to increase capacity and support the growth strategy of the packaging division. Cost reduction initiatives in the printing division and the Media Sector and the decrease of $8.0 million in stock-based compensation expense as a result of the change in the share price in fiscal 2016 compared to the prior year partially offset the decrease in existing operations.

Adjusted net earnings attributable to shareholders of the Corporation increased 5.1%, from $186.7 million, or $2.39 per share, to $196.3 million, or $2.53 per share. This improvement is mainly attributable to higher adjusted operating earnings and, to a lesser extent, a decrease in financial expenses net of the reversal resulting from notices of assessment. Net earnings attributable to shareholders of the Corporation went from $262.6 million, or $3.36 per share, to $146.3 million, or $1.89 per share. This decrease is mostly due to several favourable adjustments recorded in the fourth quarter of 2015, including a $51.7 million revaluation of tax assets in the United States. Moreover, the gain on the sale of the consumer magazine publishing activities and the reversal of financial expenses resulting from notices of assessment also contributed to the variation compared to the prior year. Lastly, a higher impairment expense and greater restructuring and other costs (revenues) also explain this decrease.

For more detailed financial information, please see Management’s Discussion and Analysis for the fiscal year ended October 31st, 2016 as well as the financial statements in the “Investors” section of our website at www.tc.tc

Outlook for 2017

We expect stable revenues within the printing division from our offering to retailers, which includes flyer printing, door-to-door distribution and premedia services. In addition, we will continue to develop the in-store marketing product offering. The contract to print the Toronto Star will also have a positive impact on the first six months of the year, and we are also pursuing our initiatives to secure new contracts in this area. However, these positive items should be offset by a decrease in volume from certain newspaper publishers as a result of reduced circulation. Furthermore, our magazine and commercial product printing activities will be affected by a reduction in print advertising in fiscal 2017. Lastly, the non-recurring contract to print the Census of Canada, which has been completed since the second quarter of 2016, will also have an adverse effect in early 2017. With respect to adjusted operating earnings, we will continue our operational efficiency and cost reduction initiatives to offset in large part the expected decrease in volume within this division.

In our packaging division, the acquisitions of Robbie Manufacturing and Flexstar Packaging will have a positive impact in 2017. We will maintain our disciplined acquisition approach in this promising market in order to invest in quality assets that meet our strategic criteria. In addition, our manufacturing capacity, combined with our North American salesforce, should drive sustained organic growth. We will also continue the integration of our acquisitions which should generate additional synergies.

In the Media Sector, the impact of the transformation of the advertising market should continue to affect our newspaper publishing activities, partly offset by our cost reduction initiatives. In addition, we will continue to accelerate the shift to digital of our existing operations while focusing on our key competencies in this market.

Our significant cash flows and excellent financial health should enable us to continue investing in order to pursue our growth during fiscal 2017.

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