Transcontinental Inc. Completes Two Acquisitions and Increases Its Profitability in the Second Quarter

Highlights

• Revenues decreased 3.8%, primarily due to the soft advertising market.

• Adjusted net earnings applicable to participating shares grew 12.9%, from $32.6 million to $36.8 million. On a per share basis, they rose from $0.42 to $0.47.

• Completed the acquisition of the assets of Capri Packaging, a producer of flexible packaging.

• Completed the acquisition of the weekly newspapers owned by Sun Media Corporation in Quebec and their related Web properties.

Under the terms of the agreement with the Competition Bureau, the Corporation must put some weekly newspapers up for sale.

• Closed a private financing agreement of $250 million in senior unsecured notes.

• Signed a multi-year agreement with Postmedia Network Inc. to print The Gazette newspaper.

Transcontinental Inc.'s (TSX: TCL.A, TCL.B, TCL.PR.D) revenues decreased by 3.8% in the second quarter, from $517.8 million to $498.2 million, primarily due to the soft advertising market, which continues to influence our marketing products printing as well as our newspaper and magazine publishing operations. This decrease was partially offset by the sustained performance of our flyer printing operations and by new contracts in both operating sectors.

Adjusted operating earnings rose from $54.2 million to $58.5 million. This performance is due to the company-wide optimization of our cost structure and our highly efficient printing platform. It was partially offset by the soft advertising market as mentioned above. Net earnings applicable to participating shares increased from $25.3 million, or $0.32 per share, to $34.7 million, or $0.45 per share. This improvement isdue to lower restructuring and other costs, an increase in adjusted operating earnings and lower financial expenses, partially offset by an increase in income taxes. Adjusted net earnings applicable to participating shares grew 12.9%, from $32.6 million, or $0.42 per share, to $36.8 million, or $0.47 per share.

“We are proud to have completed two major transactions that position TC Transcontinental strategically for the future. With the acquisition of the Capri Packaging assets, we have taken a first step into the flexible packaging market, which is a new promising growth area for the Corporation. In addition, the acquisition of the Sun Media weekly newspapers in Quebec strengthens our assets in this market, while ensuring our ability to evolve our local solutions offering in Quebec. Furthermore, our second quarter results were satisfactory. Despite the pressure we are experiencing in the advertising market, the increase in our profitability demonstrates the effectiveness of our strategy, namely strengthening existing assets and developing new revenue sources,” said François Olivier, President and Chief Executive Officer.

“For coming quarters, our excellent financial position combined with our ability to generate significant cash flows gives us the flexibility we need to integrate our recent acquisitions, continue our transformation and invest in the future of the Corporation,” Mr. Olivier added.

Supplementary Information

• On April 10, 2014, the Corporation announced the renewal of its normal course issuer bid from April 15, 2014 to April 14, 2015.

• On May 3, 2014, the Corporation completed the acquisition of the assets of Capri Packaging, a producer of flexible packaging, operating two facilities located in Clinton, Missouri. The acquisition will add about US$72 million to TC Transcontinental’s revenues. As part of the transaction, the seller, Schreiber Foods, Inc. has signed a 10-year agreement to secure Capri Packaging as a strategic supplier of flexible packaging, which represents about 75% of Capri’s total revenues.

• On May 5, 2014, TC Transcontinental Printing signed a multi-year agreement with Postmedia Network Inc. to print The Gazette, published primarily for the Montreal market. This agreement builds on our recent announcement to print the Vancouver Sun and the Calgary Herald. The contract with Postmedia Network will take effect in August 2014.

• On May 8, 2014, the Corporation completed a private financing agreement for an amount of $250 million of 3.897% senior unsecured notes due in 2019. Transcontinental Inc. intends to use the net proceeds to repay outstanding indebtedness under its revolving credit facility and for general corporate purposes.

• On June 1, 2014, Transcontinental Inc. completed the acquisition of the weekly newspapers owned by Sun Media Corporation in Quebec and their related Web properties. Under the terms of the agreement with the Competition Bureau, the Corporation must put some weekly newspapers up for sale. Despite this requirement, the transaction will add about $20 million to the operating earnings before amortization of Transcontinental Inc. and further advance the local multiplatform offering for businesses and communities.

Highlights of the First Half

In the first half of 2014, TC Transcontinental's revenues decreased 4.4%, from $1,043.4 million to $997.5 million. This decrease stems primarily from the soft advertising market in our two operating sectors. Adjusted operating earnings grew 4.4%, from $97.7 million to $102.0 million, due to the optimization of our cost structure. This increase was partially offset by the factors mentioned above. Net earnings applicable to participating shares rose from $41.0 million, or $0.52 per share, to $51.9 million, or $0.67 per share. This improvement is due to lower financial expenses, a decrease in restructuring and other costs, as well as an increase in adjusted operating earnings, partially offset by an increase in income taxes. Excluding unusual items, adjusted net earnings applicable to participating shares grew 7.1%, from $59.0 million, or $0.76 per share, to $63.2 million, or $0.81 per share.

For more detailed financial information, please see Management’s Discussion and Analysis for the second quarter ended April 30th, 2014 as well as the financial statements in the “Investors” section of our website at www.tc.tc

Outlook

New agreements to print magazines, newspapers and marketing products signed since the start of the fiscal year will reduce the impact of difficult market conditions in these niches. We believe that our printing offering to major retail chains will remain relatively stable and we are continuing to improve our point-of-purchase marketing services. The Printing Sector will also continue to optimize its cost structure and operations in order to maintain its longer-term profitability.

The Media Sector should continue to benefit from cost-structure optimization initiatives and the new flyer-distribution agreements that will help stabilize our operating margin and reduce the impact of difficult conditions in the advertising market. We will also continue to invest in the development and commercialization of new digital products. The acquisition of the Sun Media Corporation weekly papers in Quebec should also enable us to strengthen our media assets and improve our offering in local markets.

The Corporation completed the transaction to acquire the assets of Capri Packaging in order to start a new growth vector in flexible packaging. We have initiated the operational integration process, modifying our organizational structure and creating a packaging division headed by a team of senior executives with outstanding capabilities in manufacturing. The long-term agreement with the seller,

Schreiber Foods, Inc., will secure most of the revenues for this division. In the coming months we will be implementing a plan to build the loyalty of our existing customers and attract new ones to ensure our success in this promising niche.

We have secured additional long-term financing to give us the financial flexibility required to pursue our transformation and execute our growth strategy. Given our excellent financial position, we will continue our balanced approach to capital management, which allows us to reduce our debt, pay dividends and invest in our transformation focused on our core competencies. We will also keep on developing internal projects and evaluating strategic acquisitions to maintain our position in our niches, while developing our new packaging growth vector to ensure the long-term success and profitability of the business.

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.

Dividends

Dividend on Participating Shares

The Corporation’s Board of Directors declared a quarterly dividend of $0.16 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on July 17, 2014 to shareholders of record at the close of business on June 30, 2014.

Dividend on Preferred shares

The Corporation’s Board of Directors declared a quarterly dividend of $0.4207 per share on Cumulative 5-Year Rate Reset First Preferred Shares, Series D. This dividend is payable on July 15, 2014. On an annual basis, this represents a dividend of $1.6875 per preferred share.

Full tables are available here.

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