Transcontinental : Q4- 2021 Quarterly Reports

Press Release

For Immediate Release

Transcontinental Inc. announces its results for the fourth quarter and fiscal year 2021

Highlights

1. • Increase in revenues and solid profitability in the Packaging and Printing Sectors for the quarter.
   • Revenues of $775.8 million for the quarter ended October 31, 2021; operating earnings of $80.5 million; and net earnings attributable to shareholders of the Corporation of $39.2 million ($0.45 per share).
   • Adjusted operating earnings before depreciation and amortization(1) of $140.5 million for the quarter ended October 31, 2021; adjusted operating earnings(1) of $104.9 million; and adjusted net earnings attributable to shareholders of the Corporation(1) of $70.6 million ($0.81 per share).
   • Made significant investments in research and development laboratories with state-of-the-art equipment in the state of Wisconsin, to drive growth and innovation and optimize the creation of sustainable solutions for customers.
   • Acquired H.S. Crocker on November 1, 2021, broadening the packaging solutions portfolio in the food sector as well as expanding pharmaceutical and medical expertise in the advanced coatings product offering.
   • Retirement of François Olivier on December 9, 2021 and Peter Brues will assume the position of President and Chief Executive Officer on December 10, 2021.
2. Please refer to the section entitled "Non-IFRS Financial Measures" in this press release for a definition of these measures.

Montréal, December 9, 2021 - Transcontinental Inc. (TSX: TCL.A TCL.B) announces its results for the fourth quarter and fiscal year 2021, which ended October 31, 2021.

"I'm very satisfied with the results for fiscal year 2021, said François Olivier, President and Chief Executive Officer of TC Transcontinental. Excluding the significant negative impact of the rise in the price of resin, the reduction in the Canada Emergency Wage Subsidy and the exchange rate variation, our three sectors delivered excellent operating performance.

"In our Packaging Sector, our main engine of long-term growth, demand remains strong. Through our operational efficiency initiatives and our price increases resulting from higher raw material costs, we successfully offset inflationary pressures, especially with respect to resin prices. In addition, we continued to invest in our innovation initiatives to meet our customers' sustainability objectives based on the conviction that our sustainable packaging will be a key driver of our long-term growth.

"Our Printing Sector posted another quarter of strong organic growth in revenues and generated solid profitability. Growth in the fourth quarter was especially significant for our in-store marketing and book printing activities. The proportion of our growth activities in the Printing Sector continues to increase, which allowed us to end the fiscal year with higher revenues and in a favourable position for the future. Meanwhile, the Media Sector had an exceptional year in terms of both revenues and profitability.

"To conclude, following the success of our transformation, I am proud to leave behind an international company that is well positioned in its three sectors and has a solid financial position, a proven strategy as well as a seasoned new President and Chief Executive Officer and management team. I am very proud of our accomplishments and confident that TC Transcontinental has a brilliant future ahead."

Transcontinental Inc.	Telephone: [phone]
1 Place Ville Marie
Suite 3240	Fax: [phone]
Montréal, Québec H3B 0G1	www.tc.tc

Financial Highlights

		Q4 - 2021	Q4 - 2020	Variation	Fiscal 2021	Fiscal 2020	Variation
(in millions of dollars, except per share amounts)	in %	in %
Revenues (1)		$775.8	$655.7	18.3 %	$2,643.4	$2,574.0	2.7 %
Operating earnings before depreciation and amortization	133.2	134.9	(1.3)	441.5	458.0	(3.6)
Adjusted operating earnings before depreciation and	140.5	146.8	(4.3)	454.9	499.4	(8.9)
amortization (2)
Operating earnings	80.5	81.2	(0.9)	233.8	241.4	(3.1)
Adjusted operating earnings (2)	104.9	110.1	(4.7)	313.5	352.8	(11.1)
Net earnings attributable to shareholders of the	39.2	51.3	(23.6)	130.6	131.7	(0.8)
Corporation
Net earnings attributable to shareholders of the	0.45	0.59	(23.7)	1.50	1.51	(0.7)
Corporation per share
Adjusted net earnings attributable to shareholders of the	70.6	72.4	(2.5)	206.4	227.0	(9.1)
Corporation	(2)
Adjusted net earnings attributable to shareholders of the	0.81	0.84	(3.6)	2.37	2.61	(9.2)
Corporation per share (2)

1. The above revenues include a $56.5 million impact for the additional week effect in the fourth quarter of 2021, compared to 13 weeks in the fourth quarter of 2020.
2. Please refer to the section entitled "Reconciliation of Non-IFRS Financial Measures" in this press release for adjusted data presented above.

Note: The above results include $3.7 million in Canada Emergency Wage Subsidy for the fourth quarter of 2021 compared to $14.5 million for the fourth quarter of 2020, as well as $29.5 million for the fiscal year 2021 compared to $58.5 million for the year 2020.

2021 Fourth Quarter Results

Revenues increased by $120.1 million, or 18.3%, from $655.7 million in the fourth quarter of 2020 to $775.8 million in the corresponding period of 2021. This increase is mainly attributable to the impact of the rise in the price of resin and higher volume in the Packaging Sector, organic growth and the recent acquisition of BGI Retail Inc. in the Printing Sector, as well as the 53rd week of the fiscal year. This increase was partially offset by the negative impact of the exchange rate variation.

Operating earnings decreased by $0.7 million, or 0.9%, from $81.2 million in the fourth quarter of 2020 to $80.5 million in the fourth quarter of 2021. Adjusted operating earnings decreased by $5.2 million, or 4.7%, from $110.1 million in the fourth quarter of 2020 to $104.9 million in the fourth quarter of 2021. The decline in operating earnings and adjusted operating earnings is mainly due to the decrease in the Canada Emergency Wage Subsidy compared to the corresponding period of the prior year ($10.8 million), the short- term unfavourable impact of contractual lags in passing through the rise in the price of resin to customers, and the negative impact of the exchange rate ($2.0 million). These items were mostly offset by the favourable impact of the additional week on our activities, higher volume, as well as better operational efficiency in the Packaging and Printing Sectors. The decline in operating earnings was also partially offset by the $5.3 million decrease in restructuring and other costs.

Net earnings attributable to shareholders of the Corporation decreased by $12.1 million, from $51.3 million in the fourth quarter of 2020 to $39.2 million in the fourth quarter of 2021. This decline is mostly due to the increase in income taxes resulting from the tax impact of a reorganization and the increase in net financial expenses. On a per share basis, net earnings attributable to shareholders of the Corporation went from $0.59 to $0.45.

Adjusted net earnings attributable to shareholders of the Corporation decreased by $1.8 million, or 2.5%, from $72.4 million in the fourth quarter of 2020 to $70.6 million in the fourth quarter of 2021. This decrease is explained by the above-mentioned decrease in adjusted operating earnings and the increase in financial expenses, partially offset by the decrease in the tax rate. On a per share basis, adjusted net earnings attributable to shareholders of the Corporation went from $0.84 to $0.81.

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Fiscal Year 2021 Results

Revenues increased by $69.4 million, or 2.7%, from $2,574.0 million in fiscal 2020 to $2,643.4 million in fiscal 2021. This increase is mainly attributable to the impact of the rise in the price of resin and higher volume in the Packaging Sector, the impact of the 53rd week to the calendar of the fiscal year as well as acquisitions and higher volume in the in-store marketing activities in the Printing Sector. The increase in revenues was partially offset by the impact of the unfavourable exchange rate variation on the results of the Packaging Sector and the disposal of the paper packaging operations in January 2020.

Despite the increase in volume and operational efficiency initiatives in our three sectors, operating earnings decreased by $7.6 million, or 3.1%, from $241.4 million in fiscal 2020 to $233.8 million in fiscal 2021. Adjusted operating earnings decreased by $39.3 million, or 11.1%, from $352.8 million in fiscal 2020 to $313.5 million in fiscal 2021. The decline in operating earnings and adjusted operating earnings is mostly due to the short-term unfavourable impact of contractual lags in passing through the rise in the price of resin to customers, the decrease in the Canada Emergency Wage Subsidy ($29.0 million), the unfavourable exchange rate variation ($8.5 million) and higher stock-based compensation expense ($8.3 million). The decline in operating earnings was also partially offset by the $28.7 million decrease in restructuring and other costs. This favourable impact is mainly attributable to the decrease in workforce reduction costs in the Printing Sector and costs incurred in connection with the sale of the paper packaging operations in the first quarter of 2020.

Net earnings attributable to shareholders of the Corporation decreased by $1.1 million, or 0.8%, from $131.7 million in fiscal 2020 to $130.6 million in fiscal 2021. This decline is mainly due to the decrease in operating earnings caused by the above-mentioned factors, partially offset by lower net financial expenses and income taxes. On a per share basis, net earnings attributable to shareholders of the Corporation went from $1.51 to $1.50, respectively, due to the above-mentioned factors.

Adjusted net earnings attributable to shareholders of the Corporation decreased by $20.6 million, or 9.1%, from $227.0 million in fiscal 2020 to $206.4 million in fiscal 2021. This decline is mostly due to the decrease in adjusted operating earnings caused by the above-mentioned factors, partially offset by lower net financial expenses and adjusted income taxes. On a per share basis, adjusted net earnings attributable to shareholders of the Corporation went from $2.61 to $2.37.

For more detailed financial information, please see the Management's Discussion and Analysis for the fiscal year ended October 31, 2021 as well as the financial statements in the "Investors" section of our website at www.tc.tc.

Outlook

In the Packaging Sector, as a result of investing in new production equipment, signing new contracts and introducing new products on the market, we expect organic volume growth in fiscal year 2022, excluding the positive impact of the 53rd week on the results for fiscal year 2021. Despite the impact of the appreciation of the Canadian dollar against the U.S. dollar, which should continue to have a negative impact on the sector's profitability for the first quarter of fiscal year 2022, we expect to post an increase in operating earnings for fiscal year 2022 compared to the prior fiscal year.

In the Printing Sector, we expect a continued recovery in printing volume. This anticipated recovery, combined with growth in our in- store marketing activities and other growth activities, gives us confidence about the outlook for revenue growth for fiscal year 2022, excluding the positive impact of the 53rd week on the results for fiscal year 2021. In addition, excluding amounts related to the Canada Emergency Wage Subsidy and the impact of the 53rd week on fiscal year 2021, we expect an increase in operating earnings for fiscal year 2022 compared to fiscal year 2021.

Finally, we expect to continue generating significant cash flows from operating activities. These should enable us to reduce our net indebtedness, while providing us with the flexibility needed to pursue our investments focused on organic growth as well as strategic and targeted acquisitions.

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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 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 annual consolidated financial statements for the year ended October 31, 2021.

Terms Used	Definitions
Adjusted operating earnings before	Operating earnings before depreciation and amortization as well as restructuring and other costs (gains) and
depreciation and amortization	impairment of assets.
Adjusted operating earnings margin	Adjusted operating earnings before depreciation and amortization divided by revenues.
before depreciation and amortization
Adjusted operating earnings	Operating earnings before restructuring and other costs (gains), amortization of intangible assets arising from
	business combinations and impairment of assets.
Adjusted operating earnings margin	Adjusted operating earnings divided by revenues.
Adjusted income taxes	Income taxes before income taxes on restructuring and other costs (gains), impairment of assets, amortization of
	intangible assets arising from business combinations as well as the adjustment on additional income taxes in other
	jurisdictions resulting from a prior year and the tax impact of an internal reorganization.
Adjusted net earnings attributable to	Net earnings attributable to shareholders of the Corporation before restructuring and other costs (gains),
shareholders of the Corporation	amortization of intangible assets arising from business combinations and impairment of assets, net of related
	income taxes as well as the adjustment on additional income taxes in other jurisdictions resulting from a prior year
	and the tax impact of an internal reorganization.
Net indebtedness	Total of long-term debt, of current portion of long-term debt, of lease liabilities and of current portion of lease
	liabilities, less cash.
Net indebtedness ratio	Net indebtedness divided by the last 12 months' adjusted operating earnings before depreciation and amortization.

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 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.

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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Reconciliation of operating earnings - Fourth quarter and fiscal year

	Three months ended	Year ended
(in millions of dollars)	October 31,	October 25,	October 31,	October 25,
2021	2020	2021	2020
Operating earnings	$80.5	$81.2	$233.8	$241.4
Restructuring and other costs	6.6	11.9	12.7	41.4
Amortization of intangible assets arising from business combinations (1)	17.1	17.0	66.3	70.0
Impairment of assets	0.7	-	0.7	-
Adjusted operating earnings	$104.9	$110.1	$313.5	$352.8
Depreciation and amortization (2)	35.6	36.7	141.4	146.6
Adjusted operating earnings before depreciation and amortization	$140.5	$146.8	$454.9	$499.4

1. Intangible assets arising from business combinations include our customer relationships, trademarks and non-compete agreements.
2. Depreciation and amortization excludes the amortization of intangible assets arising from business combinations.

Reconciliation of operating earnings - Fourth quarter and fiscal year for Packaging Sector

	Three months ended	Year ended
(in millions of dollars)	October 31,	October 25,	October 31,	October 25,
2021	2020	2021	2020
Operating earnings	$19.7	$23.1	$64.4	$85.2
Restructuring and other costs (gains)	3.9	(0.2)	0.9	(0.2)
Amortization of intangible assets arising from business combinations (1)	15.0	15.8	60.0	65.1
Impairment of assets	0.4	-	0.4	-
Adjusted operating earnings	$39.0	$38.7	$125.7	$150.1
Depreciation and amortization (2)	18.9	19.3	73.8	77.4
Adjusted operating earnings before depreciation and amortization	$57.9	$58.0	$199.5	$227.5

1. Intangible assets arising from business combinations include our customer relationships, trademarks and non-compete agreements.
2. Depreciation and amortization excludes the amortization of intangible assets arising from business combinations.

Reconciliation of operating earnings - Fourth quarter and fiscal year for Printing Sector

	Three months ended	Year ended
(in millions of dollars)	October 31,	October 25,	October 31,	October 25,
2021	2020	2021	2020
Operating earnings	$62.8	$52.2	$197.7	$173.6
Restructuring and other costs	1.5	11.4	8.1	32.1
Amortization of intangible assets arising from business combinations (1)	2.0	1.2	6.1	4.8
Impairment of assets	0.3	-	0.3	-
Adjusted operating earnings	$66.6	$64.8	$212.2	$210.5
Depreciation and amortization (2)	14.5	14.7	57.4	58.2
Adjusted operating earnings before depreciation and amortization	$81.1	$79.5	$269.6	$268.7

1. Intangible assets arising from business combinations include our customer relationships, trademarks and non-compete agreements.
2. Depreciation and amortization excludes the amortization of intangible assets arising from business combinations.

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