Shirley Chenny - Advisor, Investor Relations Francois Olivier - President and Chief Executive Officer Nelson Gentiletti - Chief Financial and Development Officer

Mark Neville - Scotiabank David McFadgen - Cormark Securities Drew McReynolds - RBC Capital Markets Brett Parker - MUFG Bank

Thank you, Julianne. Good afternoon and thank you for joining us for our third quarter 2017 financial results conference call.

The press release and MD&A with complete financial statements and related notes were issued earlier today. For those of you who are not on our distribution list, the documents are posted on our website at tc.tc.

Francois Olivier, President and Chief Executive Officer, will begin by providing key operational highlights of the quarter. Nelson Gentiletti, Chief Financial and Development Officer, will then discuss some key financial figures and our outlook for the fourth quarter, the lines will then be opened for questions.

I would like to specify that this conference call is intended for the financial community. Media are in a listen-only mode and should contact Nathalie St-Jean, Senior Advisor, Communications for more information or interview requests.

Please be reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. Please refer to the MD&A for complete definition and reconciliation of such measures to IFRS financial measures.

Also, this conference call might contain forward-looking statements. Such statements based on the current expectation of Management and information available as of today inherently involve numerous risks and uncertainties known and unknown.

The risks, uncertainties and other factors that could influence actual results are described in the 2016 annual MD&A, the latest annual information form and have been updated in the MD&A for the third quarter ended July 30th. I would now like to turn the call over to Francois Olivier.

Thank you, Shirley, and good afternoon everyone. Let me start by mentioning that I'm very pleased with our third quarter results, and I would like to take the opportunity to acknowledge the outstanding work of all TC's employees as they diligently execute our strategy and deliver results.

So, as I was saying, our performance this quarter was solid. Our top line increased 2% and our operating earnings improved 7%.

Yet solely on an operational basis, meaning excluding restructuring costs, impairment of assets and especially the impact of the share price variation on our stock-based compensation expense, operating earnings grew 18% both for Q3 and year-to-date. Furthermore, we continue to generate strong cash flow this quarter and we maintain a solid balance sheet, all of which will enable us to drive further diversification of our portfolio towards flexible packaging.

Now, let's review the contributing factors behind these strong results. In our printing division again this quarter, our retail related services, namely flyer and in-store marketing as well as pre-media and distribution services thrived.

Demand from most retailers in Canada increased and the additional volume from our agreement with Lowe's Canada fully contributed. So far this year, these services increased close to 3% and represent close to 60% of our division’s revenues.

For the other 40% of our printing business, volume remained under pressure due to persistent adverse factors in the ad market. To cope with reduced volume, our team has taken steps to reduce our cost through optimization initiatives.

Overall, the printing division's profitability was up again as we benefitted from strong demand from our retail related services from previous contract wins, from improved efficiency, and from the year-over-year impact of plant closures in the first nine months of 2016. Turning to our packaging division.

The investments we've made in the past quarters in our platform and our sales force, enables us to grow sales organically again this quarter. So far this year, organic sales growth has been around 6% as previous customer wins entered the production stage.

On the acquisition front, we continue to be very active and we're optimistic on our ability to conclude future transactions. On the media side, our business and education group continues to improve its profitability and posted a significant bottom line increase.

Regarding our local newspapers, since the implementation of the sales process in mid-April, we have sold many titles and we still see strong interest for the remaining assets. We are confident that most of these publications will find takers among solid local players by the end of the year.

I would like to take the opportunity to thank all the employees in that group for their hard work and their dedication through this transition period. We are convinced that their expertise will greatly contribute to the success of new buyers.

In conclusion, the execution of our strategy contributed once again to our sound operational and financial performance this quarter. On the printing side, we are taking actions to proactively manage our platform.

For media, we continue to optimize our activities. And finally, for our packaging activities, we will continue to build our division through strategic acquisitions and organic sales growth.

We must pursue our efforts as each stride is a step forward to a successful transformation and sustainable growth. With that, I will turn it over to Nelson.

Thank you, Francois and good afternoon everyone. I would like to mention that as of today, we will proceed differently as we will skip our usual detailed review of quarterly financial figures.

We believe the market has already had the opportunity to review these numbers in our press release and MD&A published this morning. This will perhaps leave more time for questions.

However, I will nonetheless comment on our cash flow and I'll proceed by providing more color on our expectations for the final quarter of this fiscal year. On the cash flow front, in Q3, we generated $39 million, $99 million of cash flow was from operations before changes in non-cash operating items and income taxes paid.

We had a negative variance of $17 million from our working capital due mostly to some timing differences in our cash receipts. We also paid $9 million in taxes.

We invested $11 million in CapEx and distributed $16 million in dividend. At the end of the quarter, our net indebtedness was $195 million with no significant debt maturities before 2019.

Our debt-to-EBITDA ratio stood at 0.5 times at the end of the quarter. Let me provide you with an update of our expectations for the last quarter of fiscal 2017.

In our printing division, for our retailer related services, we expect revenues to remain relatively stable when compared to Q4 of last year. We may be impacted in our distribution business as a result of the major Canadian retailer filing for bankruptcy protection during this past summer.

The remaining 40% of our printing portfolio should be affected by expected volume decline due to circulation and page count decreases. Also, we will no longer benefit from the year-over-year additional contribution of the Toronto Star newspaper printing agreement in Q4.

I would like to point out that our Q4 results will not be affected by the decision of the Globe and Mail to stop printing their Maritimes addition, as this is a December 1st event. In terms of profitability, we will no longer benefit from the year-over-year impact of plant closures, which occurred in the first nine months of 2016.

In our packaging division, we will benefit from the contribution of our Flexstar Packaging acquisition. Also, we expect that sales will continue to increase organically as our sales force continues to grow its presence in the marketplace.

And finally, we will carry out our M&A plans in this promising market. In the Media Sector, our Business and Education Group will benefit from the contribution of our latest acquisition realized in December 2016, and we expect that this group will continue to perform well.

Finally, regarding our local newspaper publishing activities, we expect that their share in our media portfolio will continue to decrease as we sell more titles to local players. For the 2017 P&L, assuming stock price at yesterday's closing, you should model for full year corporate cost at an EBITDA level of about $30 million.

As a reminder, a change of $1 in our stock price impacts our results by close to $1 million. Our financial expenses are expected to be slightly higher than last year and our effective tax rate similar to last year.

And in terms of use of cash for the year, you can assume CapEx of around $50 million and cash taxes of $60 million. To conclude, we believe that our growth vector is now strategically positioned to pursue our organic growth, and that our strong balance sheet and proven ability to generate considerable cash flow, quarter-after-quarter, gives us significant flexibility to target new acquisitions.

Beside acquisitions of packaging assets, we also intend to continue with our approach to capital allocation by supporting organic growth in packaging and by continuing to return capital to shareholders. With that note, I will now proceed with a question period.

I guess just first on packaging and on the M&A front, I guess fairly quite this year. Just curious how would you describe the market, what you're seeing?

It seems like there’s still quite a bit of activity. So just curious if may be multiples are getting?

The structure, if it’s something else more just timing issues or what have you. But you got maybe just a little bit color on what you're seeing in the market?

I would say, it’s more timing, M&A takes time and people do engage and process when they are ready. And from that value standpoint and multiple standpoint what we could see, from a public corporation valuation of packaging company since two years ago, I think the multiple are going up.

So for sure, we expect that will translate into valuation of future acquisition. But, I guess, we're okay with that.

We will follow what we need to do in order to get to the assets that we feel are the right one for us, and that’s what we see in the marketplace right now.

So it doesn’t really sound like there is any major material or incremental change recently in that market for you guys, I guess, in terms of what's available in multiples and stuff like that?

The market is what it is and we’ve been in it for few years now, so we have a pretty good idea of who and all. And the market is seeing some transaction like it does every year.

And we’re following this and we will be active when the time is right for us.

Within prints and your service to retailers, it's been pretty strong year-to-date. You’re staying stable for Q4.

So is it some more challenged comp, or is it slowdown in demand that you’re expecting for the upcoming quarter?

Yes, it's a order comp in Q4 last year. I guess, we had a little bit of volume in Q3 that maybe we had in Q4 last year.

So there is a little bit of displacement of volume in terms of where all the program of retailer end-up with the calendar of each particular year. So we have a big comparable to meet last year.

Last year was our best Q4 ever in the history of the Company. So it's more, when we say stable, it’s more around the comfortable that we have to face last year.

But we feel that the business is going to remain very healthy very active, we’re solidly booked for the fall right now, actually fully booked. But this covenant is exactly what you said, Mark, is we’re up against a very strong comparable last year.

And you mentioned, Nelson I think mentioned the Globe and Mail contract or the Globe and Mail printing, the print addition to the Maritimes starting December. And I understand it won’t impact you for.

But how big of an impact would that be next year?

Not material, because this was above the print side so we do for Globe that was by far the smallest. And this factory where it’s printed is now mainly a factory that print retail flyer for mainly all retailers for the Atlantic and Martimes Provinces.

So, it will be a small impact but in the scheme of things nothing material for that plan and certainly not material for the overall EBITDA of Transcontinental.

Just a couple of questions. So you, Francois, you gave us the organic growth for printing and for packaging for the year-to-date.

I was just wondering if you can give us those organic growth numbers for the quarter. Just wondering if it's accelerating or decelerating?

Yes, I gave you two numbers in the prepared statement; one was relating to our print related services, like everything we sell to the retailer, which is the printed flyers, the distribution, the content creation and the distribution. And those services this year are up about 3% in the first nine months of the year, and this is about 60% of the overall print portfolio, those services.

And in terms of the packaging, first six months of the year, we were up about 5% organically. Now, we're up again about 6%, which means that so far this year Q3 was our best quarter in terms of organic growth.

So same-store sales are growing at 6% after nine months in the packaging division.

So when we talk about 40% of the print business being down, it seems like distribution is good, pre-media good, I guess flyers is good. Is it mainly the marketing products and the books, and magazines that are down, and newspapers?

Yes, I guess the vertical is the most down is obviously newspaper. Then, I would say, commercial printing because you have to acknowledge that last year in the commercial printing division, we've executed a very large contract for the census for the government of Canada, which was a huge contract for us; obviously, this is only coming every four years.

So we have that as a comparable. So I would say that the second vertical decreasing the most and the census adding would be commercial, then magazines, and then book as holding is on, printed book is very low single digit decrease.

We actually have some quarter. I think Q2 we were up in book printing.

So not a lot of decrease there, that's kind of how the decrease is going in terms of the vertical.

And then, Nelson, you talked about significant cash flow in the fourth quarter. Is this anything abnormal, or is it going to be similar to last year?

So last year, you had a strong quarter for cash flow in the fourth quarter?

No, I mean I think in the fourth quarter, I mean, the cash flow will follow what we're doing in terms of our EBITDA, the outlook we gave. So if we were strong last year, it was strong -- it'll be strong this quarter in line with our forecast.

And given your current leverage of 0.5 times, it's obviously fairly low, the business is performing well. Is there any thought of paying out a special dividend, or doing another substantial issuer bid like you did many years ago?

I think, at this point, I mean -- and I think, if you look and listen through Francois’ prepared comments, we're really focused on the opportunities we have, both to deploy capital organic to build our organic business in print and to make sure that we're ready on the M&A side; although, as we explained before there hasn’t been a lot of activity this year. But we are obviously very active in the marketplace and we're comfortable that there will be assets that will come to market, which we will be interested in.

So we prefer to keep our financial flexibility for those opportunities right now.

Couple of follow-ups for me. First, just in terms of the strength in flyers I think that you messaged in Q3, you said in your prepared remarks that you saw a little bit uptick from existing and then you add in the lows incremental contribution.

What's -- just Francois you often stated the union on flyers. Is this just a nice cyclical uptick that you got, or is there just anything else underneath the hood on that one?

I think as we revisit -- we spend a lot of time studying that market and we ask our third party again to tell us the status of the printed flyer and the status of digital promotion with various age group various province. And we internally did a pretty big study, two years ago.

And basically the conclusion came-in in Q3 that not a whole lot has changed in space. And I could express it, we’re up in flyers because flyer works for the retailers as simple as that.

And they were working in '16 and in '15 and '14 and in '13, and they are still working in '17 and that's why we’re up. If they would not be working I am pretty sure that retailer will not spend the money on this.

And when you look at the overall budget of retailer on promotion, what the digital promotion is capturing, it's fairly minimal and have not moved substantially in the last three or four years. And that's why we have exited that space, because we didn’t feel that this market was going to have the growth that we felt it was going to have and the flyer remains the key instrument to drive traffic to the stores.

On the media side, it just at least sequentially, we saw a nice uptick in organic growth. And just with all the divestitures you’re doing, some of the moving parts to that business.

How do we model this thing from an organic perspective, going forward, brings in my second question. I guess, on the sale of Ontario and Quebec newspapers, is this something that you would classify as discontinued or presumably what you own is still in your numbers, and it will just come off as you close these various sales?

How do we look at media in aggregate here?

Yes. Right now, it's pretty hard to look at it.

We’re trying to give you some information about what's sold, because it is not discontinued operation for us. So obviously, when you look at the comparable year-over-year, we have in the last year's sales and profit of assets that we don’t own like the Atlantic Paper and the 21 Paper we sold in Quebec.

And we feel that we have pretty good tractions and interest and all of the publication that we have in Quebec. So if things go as planned, you’re going to be left with a media asset of Transcontinental is around the business publication, around the brands that we have that like these are and investment executive and school text book publishing, which is going to be group of about $100 million that will have margin at par or superior to the print sector and that should have less decrease than the print sector, but actually probably some growth and some opportunity for further M&A.

So we’re going to move from a media group that was under a lot of pressure to the media group that have only about 15% of its revenue, and have dollar on papers. So meaning that transformation is very much further down the line and this is going to be group that have opportunity for organic and acquisition growth, which they will start with a pretty good margin profile.

So they will be contributing importantly to Transcontinental, going forward, and we have plans to grow that media group within TC.

And then on the contribution from the transaction that you did with Rogers back in December 2016. Have you ever quantified what kind of contribution that was, so the specialty financial brands?

Obviously, we know exactly. I don’t think we want to disclose that.

But what I can say is that these brands were really solid, the assets that we acquired from Rogers were great products. We've welcome a very good people and our team, and the blending of our publication and their publication has been a success.

Actually, I could say beyond our expectation. And we're really happy with that acquisition, and it’s contributing above what, like I said, what we were expecting.

So that was a very good move for us, and we're very happy with that acquisition. And it will contribute and it did contribute year-over-year this year and it will contribute a little bit next year as we acquire that in December of this year.

Just two others from me, or one other from me. Just in terms of the benefit from plant closures, so I think Nelson that you’ve alluded to in your formal remarks.

Presumably, that’s all within the context of an efficiency and positive margin impact. When you look at your combined packaging and print margins, going forward, at the benefit of that falls off just what kind of margin dynamic happens here.

Is it a question of what can you sustain, what you're currently doing all else being equal? Or do we take a little bit of step back on efficiency?

I think there is couple of things to your question; number one, obviously, the benefits that we achieved from the plant closures are reflected in our margins today. So what we're saying is, obviously, we don’t have had big catalyst in the next quarter to deal with that.

To your other question on the margins, for sure, part of the impact of the margins of that, part of it as well as we always tell the investors, the 40% of the business, which is falling, which has more secular decline, as you know, especially in the commercial business is a much lower margin business. So, in fact as that business falls off and falls off at a faster rate and we sustain the higher margins businesses in fact potentially actually your margin profile could improve slightly, could improve going forward, as a result of that.

But I think we don’t have the same major catalyst. But rest assured.

And you know this from our track record that although we don’t have the big major, we close a big plant catalyst. We are working on a lot of efficiency projects, which maybe that individually don’t have the big bang impact, but that looking forward to next year, will certainly improve our margins post Q4.

Just a follow-up in terms of business kind of way the Toronto Star. Could you provide a little more detail of that contract, why it’s being terminated early, because I thought it was a five year contract?

And then what the precautions are on the plant?

This is basically the preferred statement; it's just saying that we were talking about year-over-year contribution. And this contract started last July.

So for the first eight months of the year or nine months of the year, when you were looking at year-over-year at the Toronto Star contract which is contributing to the growth of the Company year-over-year, basically what we just said is we remind the market now this thing was there last year. So whole year-over-year it’s not going to contribute anymore.

But they’re not going anywhere. They signed a five year contract and now they are not going anywhere.

So we’ve not lost anything. We just wanted to remind the market that year-over-year we’re not going to have a positive additional impact from the start as there were last year.

That’s the only thing we made that comment.

Okay, thank you. I misunderstood.

Thank you very much.

Maybe it’s the way we wrote it, we apologize for that. That’s what we meant by the comment.

Thank you everyone, and talk to you in December.