Transcontinental's Inc. revenues grew 8% in the third quarter, from $479.4 million to $517.0 million. This growth was driven primarily by the acquisition of Quad/Graphics Canada, Inc. and Redux Media, among others, the volume generated from new printing contracts and the launches of new community newspapers in Quebec. It was, however, mitigated by the expected reduction in sales in the Educational Book Publishing Group, due mainly to the end of the school reform in Quebec, the incentives granted at the renewal of certain printing contracts and the decrease in national advertising in community newspapers outside Quebec. Excluding acquisitions, divestitures and closures, the impact of the exchange rate and the paper component variance, organic revenue growth was negative by 3% in the third quarter. The decrease originates in the Media Sector, while the Printing Sector recorded organic growth of 1%.
Adjusted operating income was down 13% during the same period, from $57.1 million to $49.9 million. This decrease is mainly due to lower volume from educational book sales, as indicated above, as well as a soft national advertising market outside Quebec and incentives granted at the renewal of certain contracts. This decrease was partially offset by improved printing platform efficiency. Net income applicable to participating shares declined 74%, from $31.5 million, or $0.39 per share, to $8.1 million, or $0.10 per share. This decrease is mainly due to restructuring, integration and acquisition costs related to the acquisition of Quad/Graphics Canada, Inc., to net income from discontinued operations namely, one- and two-colour book printing, and to the reduction in adjusted operating income. Excluding unusual items and discontinued operations, adjusted net income applicable to participating shares was down 23%, from $32.5 million, or $0.40 per share, to $24.9 million, or $0.31 per share.
"The third quarter results demonstrate the resilience of our printing operations and the adverse impact of difficult market conditions on some niches in the Media Sector," said François Olivier, President and Chief Executive Officer. "In the Printing Sector, the integration of Quad/Graphics Canada, Inc. progressed and we are on track to generate the anticipated synergies of more than $40 million over the next 18 months. In fact, starting in the fourth quarter, we will reap the benefits of this acquisition more significantly. We sold our remaining one- and two-colour book printing assets and renewed several contracts with national retailers. We also recently extended contracts to print Rogers' marketing products and magazines.
François Olivier noted also that "although the Media Sector has been affected by the exceptional events that have lowered the results of the Educational Book Publishing Group, we continued to invest in the development of new products and services. The scope of our digital network was expanded through the acquisition of Redux Media and the partnership with Glacier Media. We enriched the content of our platforms by acquiring all outstanding shares of the newspaper Métro Montréal and launching several mobile apps. In addition, the organization continues to generate significant cash flows and has a solid financial position. Over the next 12 to 18 months, our priorities will be to complete the integration of Quad/Graphics Canada, Inc., to further invest in our multiplatform offering and to improve the Media Sector's performance."
• Sold the assets of one- and two-colour book printing plants Transcontinental Gagné in Louiseville and Transcontinental Métrolitho in Sherbrooke, Quebec. Transcontinental Inc. plans to pursue its educational book printing activities in the four-colour web printing niche in the Quebec, Canada and U.S. markets.
• Extension to 2019 of contracts to print Rogers' marketing products and magazines for a value of up to $250 million. These agreements follow in the wake of other contracts renewed since January 2012 with key accounts in various sectors of the retail industry in Canada. These contracts with retailers are valued at more than $1.5 billion and have terms of three to six years.
• Ongoing development of Transcontinental Inc.'s digital and interactive activities with the acquisition of a majority stake in Redux Media, a leading online advertising network that specializes in real-time bidding, and by setting up a digital advertising representation partnership with Glacier Media, publisher of newspapers and business information products. In addition to expanding its digital network, the Corporation is providing new mobile applications, notably On the Table and P$ Mobile Service, an innovative remote parking payment solution for Stationnement de Montréal.
• Purchase of all outstanding shares of the newspaper Métro Montréal. With this transaction the weekday paper will become a provider of local, national and international information across the various TC Transcontinental platforms, including the new morning show, Ça commence bien! produced by the Corporation's television production house.
• The Corporation has been authorized to redeem, for cancellation on the open market, between April 13, 2012 and April 12, 2013, up to 5% of its Class A Subordinate Voting Shares and its Class B Shares. In the three and nine months ended July 31, 2012, the Corporation redeemed 471,500 of its Class A Subordinate Voting Shares at a weighted average price of $9.27 for a total cash consideration of $4.4 million, in accordance with its normal course issuer bid put in place on April 13, 2012.
For more detailed financial information, please see Management's Discussion and Analysis for the third quarter ended July 31, 2012 as well as the financial statements in the "Investors" section of our website at www.tc.tc
Highlights of the First Nine Months
For the first nine months of fiscal 2012, the revenues of Transcontinental Inc. grew 4%, from $1,467.7 million to $1,527.0 million. This increase is mainly due to the acquisition of Quad/Graphics Canada, Inc. and Redux Media, among others, to new contracts, notably with Canadian Tire, and to community-newspaper acquisitions in Quebec. It was mitigated by the lower volume from the non-recurring revenue from the printing contract for the Canadian Census last year, by the erosion of demand in the Educational Book Publishing Group due to the end of the school reform in Quebec, by the soft national advertising market which affected community newspapers outside Quebec and by the incentives granted at the renewal of certain printing contracts.
Adjusted operating income was down 11%, from $166.6 million to $148.8 million, primarily due to the above-noted reasons, and to margin erosion stemming from competitive pressures in the local solutions market. Net income applicable to participating shares decreased, from $89.9 million, or $1.11 per share, to a loss of $131.4 million, or $1.62 per share. This decrease is mainly due to an impairment of assets of $180.8 million, which is non-cash and non-operational. The notices of re-assessment received from the federal and provincial tax authorities last February, totalling $58 million, which the Corporation is currently contesting, and the restructuring, integration and acquisition costs to integrate Quad/Graphics Canada, Inc. also contributed to the decrease. Excluding unusual items and discontinued operations, adjusted net income applicable to participating shares was down 13%, from $100.8 million, or $1.24 per share, to $87.5 million, or $1.08 per share.
Reconciliation of Non-IFRS Financial Measures
Financial data have been prepared in conformity with IFRS. However, certain measures used in this press release do not have any standardized meaning under IFRS and could be calculated differently by other companies. We believe that many readers analyze our results based on certain non-IFRS financial measures because such measures are more appropriate for evaluating the Corporation's operating performance. Internally, Management uses such non-IFRS 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 IFRS.
At its September 6, 2012 meeting, the Corporation's Board of Directors declared a quarterly dividend of $0.145 per Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on October 19, 2012 to participating shareholders of record at the close of business on October 1, 2012. On an annual basis, this represents a dividend of $0.58 per share. Furthermore, at the same meeting, the Board also declared a quarterly dividend of $0.4242 per share on cumulative 5-year rate reset first preferred shares, series D. This dividend is payable on October 15, 2012. On an annual basis, this represents a dividend of $1.6875 per preferred share.