Transcontinental Inc.'s revenues for fiscal 2013 remained stable at $2.1 billion. This performance is mainly related to the contribution from acquisitions, in particular the acquisition of Quad/Graphics Canada, Inc., which was however offset by the end of the contract to print and distribute Zellers flyers, a decrease in volume in the company’s book and magazine printing operations, a difficult advertising environment and the incentives granted for the renewal of certain contracts in 2012.
Highlights of fiscal 2013:
• Adjusted net income applicable to participating shares grew 5.2%, from $149.4 million to $157.2 million; on a per share basis, it rose from $1.85 to $2.02.
• Excellent Printing Sector performance, including $30 million in realized synergies from the acquisition of Quad/Graphics Canada, Inc. in 2013 and $40 million since the acquisition in March 2012.
• Recorded an asset impairment charge (including goodwill) of $170 million mainly due to difficult market conditions in the Media Sector.
• Successfully launched in-store marketing printing services for Canadian retailers, which generated annualized revenues of $25 million in 2013.
• Received an amount of US$200 million from the renegotiation of an agreement with Hearst Corporation.
• Declared a special dividend of $1.00 per participating share, or approximately $78 million, in addition to the regular dividend.
• Maintained a solid financial position with a net indebtedness ratio of 0.91x.
• Entered into a definitive agreement pursuant to which the Corporation will acquire all Quebec community newspapers and associated web properties from Sun Media Corporation, a subsidiary of Quebecor Media, for a total purchase price of $75 million, as well as an agreement with Quebecor Media for the printing of some of its magazines and direct marketing material.
Adjusted operating income declined slightly, or 0.6%, from $245.2 million to $243.8 million. This slight decrease is primarily due to the share-price variance in fiscal 2013, compared to fiscal 2012 (a 62% rise in share price), which increased the stock-based compensation expense, as well as the reasons mentioned above.
This decrease in adjusted operating income was partially offset, however, by synergies derived from the acquisition of Quad/Graphics Canada, Inc. and the optimization of the company-wide cost structure.
"In fiscal 2013, considering the profound transformation that is ongoing in our industry, we have delivered strong results that reflect the excellence of our manufacturing know-how and our new product and service development efforts," said François Olivier, president and CEO. "I am especially proud of the solid performance delivered by our Printing Sector which increased its adjusted operating income by 12%, or $23 million, making 2013 a record year for this operating segment. These results are due in large part to the successful integration of Quad/Graphics Canada, Inc.'s operations into our print network, which generated significant synergies and enabled greater optimization of our platform. In addition, despite the ongoing challenge of a soft advertising market, I would highlight that the launch of new digital media products in 2013, as well as investments in non-advertising related businesses, such as educational publishing, contributed to maintaining our revenues.
“As a result of our excellent financial position and our ability to generate significant cash flows, we were able to both significantly reduce our debt and pay a special dividend to our participating shareholders in addition to paying the regular dividend,” Olivier added. “Our strong balance sheet gives us the financial flexibility we need to strategically pursue our transformation in conjunction with our employees, our communities, our shareholders and our customers."
In fiscal year 2013, Transcontinental’s Printing Sector recorded a significant increase in adjusted operating income of 12%, or $23 million, to reach $223 million. The integration of Quad/Graphics Canada, Inc.'s operations generated $30 million in synergies in 2013 and $40 million since the acquisition in March 2012.
During fiscal 2013, the company concluded several multi-year agreements valued at more than $40 million per year, including an agreement with Safeway U.S. to print flyers at the plant in Fremont, CA; a five-year agreement to print the Calgary Herald and the Vancouver Sun, both owned by Postmedia Network Inc.; and an agreement with Shoppers Drug Mart/Pharmaprix for in-store marketing, a promising new niche.
Fiscal 2013 was characterized by debt reduction, due to significant cash flows and the amount of US$200 million received from the renegotiation of an agreement with Hearst Corporation.
TC Transcontinental's revenues for the fourth quarter declined from $585.1 million in 2012 to $566.3 million in 2013, mainly as a result of the difficult market conditions that affected the company’s magazine and book printing operations. This decrease is also attributable to the soft advertising market that continued to impact the Media Sector, mostly in local markets, and to the end of the contract to print and distribute Zellers flyers after its store closures. The decrease was partially offset by new contracts in the Printing Sector.
In the fourth quarter, adjusted operating income decreased by 10.7%, from $96.4 million to $86.1 million.
The Printing Sector generated synergies reaching approximately $40 million, as expected at the time of the acquisition of Quad/Graphics Canada, Inc., and should generate a few million dollars in additional synergies during fiscal 2014. In addition, since the start of fiscal 2013, Transcontinental signed new agreements to print newspapers, flyers, and marketing products whose contribution should be noted more significantly in fiscal 2014.
In the Media Sector, the difficult market conditions with respect to advertising spending in local and national markets are likely to persist. As a result, the company will continue to optimize cost structure to limit the potential impact on profit margins. The new agreements announced with Quebecor Media Inc. for the printing of some of its magazines and direct marketing materials should begin to progressively have a positive impact as of February 2014.