Transcontinental : Q2-2023 Quarterly Report

Financial Highlights

(1) Please refer to the section entitled "Reconciliation of Non-IFRS Financial Measures" in this Press release for adjusted data presented above.

Results of the Second Quarter of Fiscal 2023

Revenues increased by $31.7 million, or 4.4%, from $715.5 million in the second quarter of 2022 to $747.2 million in the corresponding period of 2023. This increase is mostly attributable to the favourable exchange rate effect, mainly in the Packaging Sector, and the acquisitions of Éditions du renouveau pédagogique Inc. ("ERPI"), Banaplast S.A.S. ("Banaplast") and Scolab Inc. ("Scolab").

Operating earnings before depreciation and amortization increased by $2.4 million, or 2.3%, from $102.8 million in the second quarter of 2022 to $105.2 million in the second quarter of 2023. Adjusted operating earnings before depreciation and amortization increased by $5.4 million, or 5.2%, from $103.6 million in the second quarter of 2022 to $109.0 million in the second quarter of 2023. These increases are mainly due to the positive impact of the increase in prices to mitigate the impact of inflation, cost reduction initiatives and the favourable exchange rate effect, partially offset by lower volume and the unfavourable impact of the stock-based compensation expense. Finally, the increase in restructuring and other costs had a negative effect on operating earnings before depreciation and amortization.

Net earnings attributable to shareholders of the Corporation decreased by $6.1 million from $28.3 million in the second quarter of 2022 to $22.2 million in the second quarter of 2023. This decrease is mainly due to the increase in financial expenses, depreciation and amortization as well as restructuring and other costs, partially mitigated by lower income taxes. On a per share basis, net earnings attributable to shareholders of the Corporation went from $0.33 to $0.26, respectively.

Adjusted net earnings attributable to shareholders of the Corporation decreased by $2.6 million, or 6.2%, from $41.7 million in the second quarter of 2022 to $39.1 million in the second quarter of 2023. This decrease is due to the increase in financial expenses and depreciation and amortization, partially mitigated by the increase in adjusted operating earnings before depreciation and amortization and lower income taxes. On a per share basis, adjusted net earnings attributable to shareholders of the Corporation went from $0.48 to $0.45, respectively.

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Results of the First Six Months of Fiscal 2023

Revenues increased by $48.1 million, or 3.4%, from $1,406.1 million in the first six months of fiscal 2022 to $1,454.2 million in the corresponding period of 2023. This increase is mainly explained by the favourable exchange rate effect and acquisitions, partially offset by the organic decline chiefly caused by lower volume.

Operating earnings before depreciation and amortization decreased by $12.4 million, or 6.4%, from $193.5 million in the first six months of fiscal 2022 to $181.1 million in the corresponding period of 2023. This decline is mainly explained by the increase in restructuring and other costs.

Adjusted operating earnings before depreciation and amortization increased by $0.5 million, or 0.3%, from $192.6 million in the first six months of fiscal 2022 to $193.1 million in the corresponding period of 2023. This increase is attributable to the organic growth in adjusted operating income before depreciation and amortization in the Packaging Sector and the favourable exchange rate effect. These factors were partially offset by the organic decline in adjusted operating income before depreciation and amortization in the Printing Sector, mostly caused by lower volume, notably in retail flyer printing activities and distribution.

Net earnings attributable to shareholders of the Corporation decreased by $23.5 million, or 50.3%, from $46.7 million in the first six months of fiscal 2022 to $23.2 million in the corresponding period of 2023. This decrease is mainly due to the increase in restructuring and other costs, depreciation and amortization and financial expenses, partially mitigated by lower income taxes. On a per share basis, net earnings attributable to shareholders of the Corporation went from $0.54 to $0.27, respectively.

Adjusted net earnings attributable to shareholders of the Corporation decreased by $11.5 million, or 16.0%, from $71.7 million in the first six months of fiscal 2022 to $60.2 million in the corresponding period of 2023, mostly as a result of the increase in financial expenses and depreciation and amortization, partially mitigated by lower income taxes. On a per share basis, adjusted net earnings attributable to shareholders of the Corporation went from $0.83 to $0.70, respectively.

For more detailed financial information, please see the Management's Discussion and Analysis for the second quarter of fiscal 2023 ended April 30, 2023 as well as the financial statements in the "Investors" section of our website at www.tc.tc.

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Outlook

In the Packaging Sector, our investments in sustainable packaging solutions position us well for the future and should be a key driver of our long-term growth. The economic environment should however continue to affect short-term demand. In terms of profitability, despite the pressures on volume, we expect an increase in adjusted operating earnings before depreciation and amortization for fiscal year 2023 compared to fiscal year 2022.

In the Printing Sector, we expect volume growth in our book printing and in-store marketing activities. The transfer of cost increases should however have a negative impact on volume, notably in our retail flyer printing and distribution activities. This anticipated volume reduction, combined with the effect of inflationary pressures, should result in lower adjusted operating earnings before depreciation and amortization for fiscal year 2023 compared to fiscal year 2022. We expect this decrease to be partially offset by the implementation of the cost reduction initiatives announced in March 2023.

Finally, we expect to continue generating significant cash flows from operating activities, which will enable us to continue our strategic investments while maintaining our dividend and reducing our net indebtedness.

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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 certain 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 unaudited interim condensed consolidated financial statements for the second quarter ended April 30, 2023.

Reconciliation of Non-IFRS Financial Measures

The financial information has been prepared in accordance with IFRS. However, financial measures used, namely adjusted operating earnings before depreciation and amortization, adjusted operating earnings, 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.

The Corporation also believes that these measures are useful indicators of the performance of its operations and its ability to meet its financial obligations. Furthermore, management also uses some of these non-IFRS financial measures to assess the performance of its activities and managers.

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