Transcontinental Inc. announces its results for the third quarter of fiscal 2020

Highlights

• Significantly improved profitability in the Packaging Sector and strictly controlled costs in the Printing Sector.
• Strengthened our measures to protect employee health and safety during the pandemic and maintained our financial support programs for employees who were temporarily laid off or on reduced work schedules.
• Revenues of $587.4 million; operating earnings of $75.3 million; and net earnings attributable to shareholders of the Corporation of $48.3 million ($0.56 per share). 
• Adjusted operating earnings before depreciation and amortization⁽¹⁾ of $139.3 million; adjusted operating earnings⁽¹⁾ of $102.1 million; and adjusted net earnings attributable to shareholders of the Corporation⁽¹⁾ of $68.2 million ($0.78 per share).
• Maintained solid financial health with an improved net indebtedness ratio⁽¹⁾ of 2.0x (1.8x excluding the impact of IFRS 16⁽²⁾), liquidities of $197.3 million and access to unused lines of credit of $433.5 million.
• Promising start in our flexible packaging recycling operations to help accelerate the transition to a circular economy for plastic.

(1)  Please refer to the section entitled "Non-IFRS Financial Measures" in this press release for a definition of these measures. 
(2)  The Corporation adopted IFRS 16 using the modified retrospective transition method. Under this method, the calculation of the net indebtedness ratio includes the full impact of IFRS 16 on the numerator and a partial impact on the denominator. For comparison purposes, the ratio excluding IFRS 16 was calculated.

 

Montréal, September 9, 2020 - Transcontinental Inc. (TSX: TCL.A TCL.B) announces its results for the third quarter of fiscal 2020, which ended July 26, 2020.

"Our solid results continue to demonstrate the relevance of our transformation into flexible packaging. I am very satisfied with our excellent performance for the quarter, which once again highlights our resilience, our agility and our operational efficiency, said François Olivier, President and Chief Executive Officer of TCTranscontinental. With the pandemic continuing to impact our sectors in different ways, I am proud of the exceptional work of our teams.

"In our Packaging Sector, mainly located in the United States, Latin America and Canada, we delivered another excellent quarter by being agile in responding to increased customer demand for food and everyday consumer products packaging. As a result, we recorded solid organic growth while continuing to improve our profitability thanks to our operational efficiency gains and better than expected synergies. In addition, our flexible packaging recycling operations are off a promising start since the acquisition of the assets of Montréal-based Enviroplast Inc., in June 2020. We are thus furthering the development of the circular economy for plastic.

"In our Printing Sector, we quickly reduced our costs from the onset of the pandemic to adjust to the reduction in our activities. We  continue to take the measures needed to optimize our platform, which is located in Canada, while meeting our customers' needs. The gradual recovery in printing volume for the sector enabled us to recall close to 60% of the employees who were temporarily laid off at the end of March. I thank them once again for their patience and understanding.

"To conclude, the measures we implemented to manage the situation were successful. We took great care of the health and safety of our employees while delivering excellent results. Although the economic climate continues to be uncertain, we remain confident in our ability to generate significant cash flows and are strongly positioned to take advantage of future business opportunities and pursue our transformation."

Financial Highlights

2020 Third Quarter Results 

Revenues decreased by $141.5 million, or 19.4%, from $728.9 million in the third quarter of 2019 to $587.4 million in the corresponding period of 2020. This decrease is largely attributable to lower volume in the Printing Sector, mostly due to the impact of the COVID-19 pandemic, and to the impact of the disposal of our paper packaging operations ($67.4 million), which were sold at the end of the first quarter of 2020. The sale of the specialty media assets and event planning activities also contributed to this decrease. The Packaging Sector, benefiting from a significant increase in volume in several segments supporting the retail supply chain for food and everyday consumer products, and despite the impact on revenues of lower raw material costs, generated solid organic growth of $6.7 million.

Operating earnings increased by $18.7 million, or 33.0%, from $56.6 million in the third quarter of 2019 to $75.3 million in the third quarter of 2020. Adjusted operating earnings increased by $21.2 million, or 26.2%, from $80.9 million to $102.1 million. These increases are attributable to higher volume and the realization of synergies and operational efficiency initiatives in the Packaging Sector, combined with the cost reduction measures taken by the Corporation as well as the Canada Emergency Wage Subsidy, mainly in the Printing Sector. These items were partially offset by lower volume in the Printing Sector, mainly as a result of the COVID-19 pandemic.

In the Packaging Sector, adjusted operating earnings increased by $11.5 million, from $34.1 million in the third quarter of 2019 to $45.6 million in the third quarter of 2020. Excluding the impact of the disposal of the paper packaging operations, this increase would have been $14.5 million. It is attributable to higher volume and the realization of synergies and operational efficiency initiatives in the sector. Unlike the impact on revenues, the decrease in raw material costs had a positive impact on adjusted operating earnings as a result of the lag in price adjustment. The sector's adjusted operating earnings margin increased from 8.6% in the third quarter of 2019 to 13.1% in the third quarter of 2020.

In the Printing Sector, adjusted operating earnings increased by $7.7 million, or 16.4%, from $46.8 million in the third quarter of 2019 to $54.5 million in the third quarter of 2020. This increase is attributable to the cost reduction measures taken by the Corporation and to the Canada Emergency Wage Subsidy, partially offset by lower volume due to the impact of the COVID-19 pandemic. Excluding the subsidy, the adjusted operating earnings margin remained relatively stable, despite a significant decrease in revenues, mostly as a result of cost reduction initiatives taken by the Corporation.

Net earnings attributable to shareholders of the Corporation increased by $44.9 million, from $3.4 million in the third quarter of 2019 to $48.3 million in the third quarter of 2020. This increase is attributable to operational performance as well as a decrease in income taxes relative to an income tax expense of $30.2 million in 2019 resulting from the retroactive application of a new directive as part of the U.S. tax reform. On a per share basis, net earnings attributable to shareholders of the Corporation went from $0.04 to $0.56.

Adjusted net earnings attributable to shareholders of the Corporation increased by $16.0 million, or 30.7%, from $52.2 million in the third quarter of 2019 to $68.2 million in the third quarter of 2020. This increase is mostly attributable to higher adjusted operating earnings, combined with a decrease in net financial expenses resulting from a reduction in net indebtedness and a lower weighted average interest rate, partially offset by the increase in adjusted income taxes stemming from higher earnings before taxes. On a per share basis, adjusted net earnings attributable to shareholders of the Corporation went from $0.60 to $0.78.

2020 First Nine Months Results 

Revenues decreased by $329.6 million, or 14.7%, from $2,247.9 million in the first nine months of 2019 to $1,918.3 million in the corresponding period of 2020. This decrease is largely due to lower volume in the Printing Sector, which has been severely affected by the COVID-19 pandemic. The disposal of our paper packaging operations, sold at the end of the first quarter of 2020, as well as the sale of the specialty media assets and event planning activities in 2019 also contributed to the decrease. As for the organic decline in the Packaging Sector, it is attributable to the decrease in raw material costs and the organic decline in the paper packaging operations before their disposal in January 2020. Excluding these items, the Packaging Sector would have generated positive organic growth for the first nine months of 2020.

Operating earnings increased by $6.9 million, or 4.5%, from $153.3 million in the first nine months of 2019 to $160.2 million in the corresponding period of 2020. This increase is mostly explained by the realization of synergies and operational efficiency initiatives in the Packaging Sector, combined with cost reduction measures taken by the Corporation, in addition to its operational efficiency initiatives and the Canada Emergency Wage Subsidy, mostly in the Printing Sector. These items were partially offset by lower volume in the Printing Sector, mainly as a result of the COVID-19 pandemic. Adjusted operating earnings increased by $1.5 million, or 0.6%, from $241.2 million in the first nine months of 2019 to $242.7 million in the corresponding period of 2020. 

Net earnings attributable to shareholders of the Corporation increased by $26.6 million, or 49.4%, from $53.8 million in the first nine months of 2019 to $80.4 million in the corresponding period of 2020. This increase is mainly attributable to the previously explained higher operating earnings as well as the decrease in net financial expenses and income taxes. On a per share basis, net earnings attributable to shareholders of the Corporation went from $0.62 to $0.93 due to the previously mentioned items. 

Adjusted net earnings attributable to shareholders of the Corporation increased by $4.3 million, or 2.9%, from $150.3 million in the first nine months of 2019 to $154.6 million in the corresponding period of 2020. This increase is mostly attributable to a decrease in net financial expenses resulting from a reduction in net indebtedness and a lower weighted average interest rate. This increase was partially offset by higher adjusted income taxes due to the increase in earnings before income taxes and a higher tax rate stemming from the geographic distribution of earnings before income taxes. On a per share basis, adjusted net earnings attributable to shareholders of the Corporation went from $1.72 to $1.77.

For more detailed financial information, please see the Management’s Discussion and Analysis for the third quarter ended July 26, 2020 as well as the financial statements in the “Investors” section of our website at www.tc.tc.

Outlook

In the Packaging Sector, the vast majority of our operations support the retail supply chain for food and everyday consumer products, which are experiencing an increase in volume due to the COVID-19 pandemic. The significant and rapid increase in the price of resin seen recently will have a negative impact on the sector's profitability in the fourth quarter. In addition, the disposal of our paper packaging operations, sold in January 2020, will continue to impact revenues and profitability. Despite these impacts, we continue to expect a slight increase in our profit margins, when compared to the prior fiscal year, as a result of our synergies and our operational efficiency initiatives.

In the Printing Sector, we expect that the organic decline will continue to affect several of our verticals, and that it will be amplified by the impact of the COVID-19 pandemic, which continues to impact several of our customers. Operational efficiency initiatives will continue to mitigate the impact of the volume decline on our operating earnings. In recent months, the gradual recovery in printing volume enabled us to recall close to 60% of the temporary laid-off employees. As a result of the recovery in printing volume and changes in the program's terms and conditions, amounts related to the Canada Emergency Wage Subsidy will significantly decrease in the fourth quarter. The Corporation will continue to adjust its capacity to continue generating significant cash flows and solid operating margins.

To conclude, despite the fact that the impact of the COVID-19 pandemic remains unpredictable, we expect to continue generating significant cash flows from all our activities. This will enable us to reduce our net indebtedness, while providing us with the desired flexibility to continue our transformation through strategic and targeted acquisitions.

Non-IFRS Financial Measures

In this document, unless otherwise indicated, all financial data are prepared in accordance with International Financial Reporting Standards (IFRS) and the term "dollar", as well as the symbol "$" designate Canadian dollars. 

In addition, in this press release, we also use non-IFRS financial measures for which a complete definition is presented below and for which a reconciliation to financial information in accordance with IFRS is presented in the section entitled "Reconciliation of Non-IFRS Financial Measures" and in Note 3, "Segmented Information", to the interim condensed consolidated financial statements for the third quarter ended July 26, 2020.

Reconciliation of Non-IFRS Financial Measures

The financial information has been prepared in accordance with IFRS. However, financial measures used, namely adjusted revenues, adjusted operating earnings before depreciation and amortization, adjusted operating earnings, adjusted operating earnings margin, adjusted income taxes, adjusted net earnings attributable to shareholders of the Corporation, adjusted net earnings attributable to shareholders of the Corporation per share, net indebtedness and net indebtedness ratio, for which a reconciliation is presented in the following table, do not have any standardized meaning under IFRS and could be calculated differently by other companies. We believe that many of our readers analyze the financial performance of the Corporation’s activities based on these non-IFRS financial measures as such measures may allow for easier comparisons between periods. These measures should be considered as a complement to financial performance measures in accordance with IFRS. They do not substitute and are not superior to them.

We also believe that adjusted revenues, adjusted operating earnings before depreciation and amortization, adjusted operating earnings and adjusted net earnings attributable to shareholders of the Corporation are useful indicators of the performance of our operations. Furthermore, management also uses some of these non-IFRS financial measures to assess the performance of its activities and managers.

Regarding net indebtedness and net indebtedness ratio, we believe that these indicators are useful to measure the Corporation’s financial leverage and ability to meet its financial obligations and continue its transformation.

Dividend 

The Corporation's Board of Directors declared a quarterly dividend of $0.225 per share on Class A Subordinate Voting Shares and Class B Shares. This dividend is payable on October 19, 2020 to shareholders of record at the close of business on October 2, 2020. 

Normal Course Issuer Bid

In February 2020, the Corporation received approval from the Toronto Stock Exchange to amend its normal course issuer bid (“NCIB”) in order to increase the maximum number of Class A Subordinate Voting Shares that may be repurchased from 1,000,000 Class A Subordinate Voting Shares, representing approximately 1.36% of the 73,360,754 issued and outstanding Class A Subordinate Voting Shares as of September 18, 2019 (the "reference date"), to 2,000,000 Class A Subordinate Voting Shares, representing approximately 2.73% of the 73,360,754 issued and outstanding Class A Subordinate Voting Shares on the reference date. No other terms of the NCIB have been amended.

Purchases under the NCIB, which began on October 1, 2019 and will end no later than September 30, 2020, will be made through the facilities of the Toronto Stock Exchange and/or alternative Canadian trading systems in accordance with its requirements. Under its current NCIB, as of August 31, 2020, the Corporation had repurchased 450,450 of its Class A Subordinate Voting Shares at a weighted average price of $15.70 per share, for a total cash consideration of $7.1 million (no change since February 14, 2020). 

Additional information

Conference Call

Upon releasing its 2020 third quarter results, the Corporation will hold a conference call for the financial community today at 4:15 p.m. The dial-in numbers are 1 647 788-4922 or 1 877 223-4471. Media may hear the call in listen-only mode or tune in to the simultaneous audio broadcast on the Corporation’s website, which will then be archived for 30 days. For media requests or interviews, please contact Nathalie St-Jean, Senior Advisor, Corporate Communications of TC Transcontinental, at 514 954-3581.

Profile

TC Transcontinental is a leader in flexible packaging in North America, and Canada’s largest printer. The Corporation is also positioned as the leading Canadian French-language educational publishing group. For over 40 years, TC Transcontinental's mission has been to create quality products and services that allow businesses to attract, reach and retain their target customers. 

Respect, teamwork, performance and innovation are the strong values held by the Corporation and its employees. TC Transcontinental's commitment to its stakeholders is to pursue its business activities in a responsible manner. 

Transcontinental Inc. (TSX: TCL.A TCL.B), known as TC Transcontinental, has approximately 8,500 employees, the majority of which are based in Canada, the United States and Latin America. TC Transcontinental had revenues of more than C$3.0 billion for the fiscal year ended October 27, 2019. For more information, visit TC Transcontinental's website at www.tc.tc. 

Forward-looking Statements

Our public communications often contain oral or written forward-looking statements which are based on the expectations of management and inherently subject to a certain number of risks and uncertainties, known and unknown. By their very nature, forward-looking statements are derived from both general and specific assumptions. The Corporation cautions against undue reliance on such statements since actual results or events may differ materially from the expectations expressed or implied in them. Forward-looking statements may include observations concerning the Corporation's objectives, strategy, anticipated financial results and business outlook. The Corporation's future performance may also be affected by a number of factors, many of which are beyond the Corporation's will or control. These factors include, but are not limited to, the economic situation in the world, structural changes in the industries in which the Corporation operates, the exchange rate, availability of capital at a reasonable rate, bad debts from certain customers, import and export controls, raw materials and transportation costs, competition, the Corporation's ability to generate organic growth in its Packaging Sector, the Corporation's ability to identify and engage in strategic transactions and effectively integrate acquisitions into its activities without affecting its growth and its profitability, while achieving the expected synergies, the political and social environment as well as regulatory and legislative changes, in particular with regard to the environment or door-to-door distribution, changes in consumption habits related, in particular, to issues involving sustainable development and the use of certain products or services such as door-to-door distribution, the impact of digital product development and adoption on the demand for retailer-related services and other printed products, change in consumption habits or loss of a major customer, the impact of customer consolidation, the safety and quality of its packaging products used in the food industry, innovation of its offering, the protection of its intellectual property rights, concentration of its sales in certain segments, cybersecurity and data protection, the inability to maintain or improve operational efficiency and avoid disruptions that could affect its ability to meet deadlines, recruiting and retaining qualified personnel in certain geographic areas and industry sectors, taxation, interest rates, indebtedness level and the impact of the COVID-19 pandemic on its operations, facilities and financial results, change in consumption habits from consumers and changes in the operations and financial position of the Corporation's customers due to the pandemic and the effectiveness of plans and measures   implemented in response thereto. The main risks, uncertainties and factors that could influence actual results are described in the Management's Discussion and Analysis for the year ended October 27, 2019 and in the latest Annual Information Form, and were updated in the Management's Discussion and Analysis for the second quarter ended April 26, 2020.  

Unless otherwise indicated by the Corporation, forward-looking statements do not take into account the potential impact of non-recurring or other unusual items, nor of disposals, business combinations, mergers or acquisitions which may be announced or entered into after the date of September 9, 2020. The forward-looking statements in this press release are made pursuant to the “safe harbour” provisions of applicable Canadian securities legislation. The forward-looking statements in this release are based on current expectations and information available as at September 9, 2020. Such forward-looking information may also be found in other documents filed with Canadian securities regulators or in other communications. The Corporation's management disclaims any intention or obligation to update or revise these statements unless otherwise required by the securities authorities.

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For information: 

Media
Nathalie St-Jean
Senior Advisor, Corporate Communications 
TC Transcontinental
Telephone: 514-954-3581
nathalie.st-jean@tc.tc
www.tc.tc

Financial Community
Yan Lapointe
Director, Investor Relations
TC Transcontinental
Telephone: 514-954-3574
yan.lapointe@tc.tc
www.tc.tc