Transcontinental Generates Organic Revenue and Profit Growth for 5th Consecutive Quarter

Highlights

• Increased its dividend on participating shares by 23%, raising the annual dividend from $0.44 per share to $0.54 per share
• Continued its digital transformation by partnering with Undertone®, a leading provider of video advertising solutions and the Canadian Booksellers Association for eBook solutions for retailers
• Continued to optimize its printing network

Transcontinental's revenues increased 1% in the second quarter of 2011, from $510.0 million to $514.7 million. This increase was primarily due to a number of new contracts, most notably from the expanded relationship with The Globe and Mail. Excluding acquisitions, divestitures and closures, the impact of the exchange rates and the paper component variance, organic revenue growth was 3%, with all three sectors contributing. Similarly, adjusted operating income increased 5%, from $58.3 million to $61.3 million, representing the 8th consecutive quarter of year over year growth, while the adjusted operating income margin increased from 11.4% to 11.9%. This increase was mainly due to the contribution from new contracts coupled with the synergies associated with the use of our most productive assets and continued efficiency improvement initiatives in the Printing sector. It was partially compensated by continued strategic investments in the Media and Interactive sectors and more intense competitive pressures in some of our niches. Net income applicable to participating shares went from $67.0 million, or $0.83 per share, to $33.0 million, or $0.41 per share. This decrease is mainly due to a gain related to the discontinuance of direct mail operations in the United States in the second quarter of 2010. Excluding unusual items, adjusted net income applicable to participating shares increased 18%, from $34.1 million to $40.1 million. On a per share basis it increased 17%, from $0.42 to $0.49.

"I am pleased with our second quarter results, especially with the fact that we have generated organic revenue and profit growth for the fifth consecutive quarter in an industry in profound transformation. This demonstrates our ability to manage our operations efficiently, grow market share and transform our business to better respond to our customers' evolving needs," said François Olivier, President and Chief Executive Officer. "I strongly believe that our service offering including print, media and interactive solutions is unmatched in the marketplace and represents a unique multiplatform offering. Furthermore, our solid financial position provides us with the flexibility to pursue our transformation. Today we announced that we were increasing our dividend to participating shareholders by 23%, raising our annual dividend from $0.44 per share to $0.54 per share, reflecting our strong cash flow generating ability," concluded Mr. Olivier.

Other Financial Highlights

• Free cash flow from operations increased significantly as cash flow from operations, before changes in non-cash operating items, increased 16%, from $65.8 million to $76.1 million and capital expenditures decreased, from $26.3 million to $8.4 million.
• As at April 30, 2011, the ratio of net indebtedness (including the securitization program) to adjusted operating income before amortization was 1.66x, as compared to 1.82x as at October 31, 2010 and 2.08x as at April 30, 2010. The ratio of net indebtedness to adjusted operating income before amortization is slightly above the target of 1.5x set by management. Over the next few quarters, it should get closer to the target given the expected increase in cash flow generation and reduction in capital expenditures.
• In the quarter, Transcontinental also prepaid and cancelled its $100 million term credit facility with Caisse de dépôt et placement du Québec and set up a new two-year $200 million securitization program. In addition, Transcontinental intends to prepay and cancel its five-year term loan of $50 million with SGF Rexfor Inc. next month.