POSTMEDIA NETWORK CANADA CORP Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three months ended November 30, 2014.
First Quarter Operating Results
Net loss in the quarter
ended November 30, 2014 was $10.3 million compared to a net loss of
$11.8 million in the same period in the prior year.
Operating income in the quarter was $18.0 million as compared to operating income of $2.3 million in the same period in the prior year. The improvement in operating income was primarily due to lower restructuring costs.
Operating income before depreciation, amortization, impairment and restructuring of $45.6 million in the quarter represents a decrease of $0.4 million (0.8%), relative to the same period in the prior year. The decrease was the result of revenue declines of $24.5 million, offset by decreases in operating expenses of $24.1 million. The decrease in operating expenses was partially due to a compensation expense recovery totaling $13.8 million related to the company’s Ontario Interactive Digital Media Tax Credit claim.
Revenue for the quarter was $169.5 million compared to $194.0 million in the prior year, a decrease of 12.6%. This decrease was primarily due to a decline in print advertising revenue of $23.5 million (20.1%) with the declines occurring across all categories, including national, local and insert advertising. Print circulation revenue decreased $2.2 million (4.3%) as a result of declines in circulation volumes partially offset by price increases. Digital revenue increased $0.7 million (3.0%) relative to the same period in the prior year due to increases in local digital advertising and digital subscription revenue partially offset by declines in digital classified advertising.
Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $24.1 million (16.3%) relative to the same period in the prior year. The decrease includes the claim for the Ontario Interactive Digital Media Tax credit as it primarily relates to previously recognized compensation expense. Excluding the recovery, operating expenses excluding depreciation, amortization, impairment and restructuring decreased $10.3 million, or 6.9%, as compared to the same period in the prior year. Expense reductions occurred in most operating expense categories including compensation, newsprint, distribution and other operating expenses. Production expenses increased as a result of production of the Montreal Gazette and Calgary Herald being outsourced in August 2014 and November 2013, respectively.
Business Transformation Initiatives
As announced in July
2012, the Company is implementing a three-year transformation program
that is targeted to result in operating cost savings of 15%-20%. During
the three months ended November 30, 2014, the Company implemented
transformation initiatives which are expected to result in net
annualized cost savings of approximately $3 million. This brings total
net annualized cost savings, since the beginning of the program, to
approximately $112 million representing approximately 16% of operating
costs at the time the program was announced.
On October 31, 2014, the Company completed the sale of the Montreal Gazette production facility. The net proceeds of approximately $12.4M will be used to reduce the size of the rights offering of subscription receipts to be conducted by Postmedia in connection with the equity financing of the Company’s acquisition of Sun Media Corporation’s English language newspapers, speciality publications and digital properties.
Management Commentary
“Great work by teams across the
organization led to the launch of reimagined products on four platforms
in Montreal and Calgary this quarter,” said Paul Godfrey, President and
CEO. “Management’s significant focus now is on working through the
regulatory approval process with the Competition Bureau for the Sun
Media acquisition, working on the integration plan and, subject to
regulatory approval, ultimately welcoming new brands and new audiences
into the fold.”
Note: All dollar amounts are expressed in Canadian dollars unless otherwise specified.
Additional Information
Additional information, including
financial statements and management’s discussion and analysis can be
found on the Company’s website at www.postmedia.com/investors/financial-reports,
on SEDAR at www.sedar.comor on the website maintained by the U.S. Securities and Exchange
Commission (the “SEC”) at www.sec.gov.
About Postmedia Network Canada Corp.
Postmedia Network
Canada Corp. (TSX:PNC.A, PNC.B) is the holding company that owns
Postmedia Network Inc., the largest publisher by circulation of paid
English-language daily newspapers in Canada, representing some of the
country’s oldest and best known media brands. Reaching millions of
Canadians every week, Postmedia engages readers and offers advertisers
and marketers integrated solutions to effectively reach target audiences
through a variety of print, online, digital, and mobile platforms.
Forward-Looking Information
This news release may include
information that is “forward-looking information” under applicable
Canadian securities laws and “forward-looking statements” within the
meaning of the U.S. Private Securities Litigation Reform Act of 1995.
The Company has tried, where possible, to identify such information and
statements by using words such as “believe,” “expect,” “intend,”
“estimate,” “anticipate,” “may,” “will,” “could,” “would,” “should” and
similar expressions and derivations thereof in connection with any
discussion of future events, trends or prospects or future operating or
financial performance. Forward-looking statements in this news release
include statements with respect to the acquisition of certain Sun Media
publications, the review of the transaction by the Competition Bureau,
the proposed debt and equity financing for the transaction and the
anticipated benefits to Postmedia from the transaction and financings.
By their nature, forward-looking information and statements involve
risks and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. These risks and
uncertainties include, among others: the possibility that the
transaction, including the related financings, will not close
(including, without limitation, as a result of the failure to gain
regulatory approvals); the risks associated with the possible failure to
realize the anticipated synergies in integrating the operations of the
Sun Media publications with the operations of Postmedia; competition
from digital and other forms of media; the effect of economic conditions
and structural changes in the industry on advertising revenue; the
ability of the Company to build out its digital media and online
businesses; the failure to maintain current print and online newspaper
readership and circulation levels; the realization of anticipated cost
savings; possible damage to the reputation of the Company’s brands or
trademarks; possible labor disruptions; possible environmental
liabilities, litigation and pension plan obligations; fluctuations in
foreign exchange rates and the prices of newsprint and other
commodities. For a complete list of our risk factors please refer to the
section entitled “Risk Factors” contained in our annual management’s
discussion and analysis for the years ended August 31, 2014, 2013 and
2012. Although the Company bases such information and statements on
assumptions believed to be reasonable when made, they are not guarantees
of future performance and actual results of operations, financial
condition and liquidity, and developments in the industry in which the
Company operates, may differ materially from any such information and
statements in this press release. Given these risks and uncertainties,
undue reliance should not be placed on any forward-looking information
or forward-looking statements, which speak only as of the date of such
information or statements. Other than as required by law, the Company
does not undertake, and specifically declines, any obligation to update
such information or statements or to publicly announce the results of
any revisions to any such information or statements.
Postmedia Network Canada Corp.
Consolidated Statements of
Operations
(UNAUDITED)
| (In thousands of Canadian dollars, except per share amounts) |
For the three months ended | |||
| 2014 | 2013 | |||
| Revenues | ||||
| Print advertising | 93,127 | 116,605 | ||
| Print circulation | 47,434 | 49,588 | ||
| Digital | 24,269 | 23,554 | ||
| Other | 4,684 | 4,231 | ||
| Total revenues | 169,514 | 193,978 | ||
| Expenses | ||||
| Compensation | 54,149 | 73,958 | ||
| Newsprint | 7,175 | 9,120 | ||
| Distribution | 24,464 | 26,308 | ||
| Production | 11,362 | 9,102 | ||
| Other operating | 26,742 | 29,479 | ||
| Operating income before depreciation, amortization, impairment and restructuring | 45,622 | 46,011 | ||
| Depreciation | 12,032 | 13,227 | ||
| Amortization | 9,535 | 10,412 | ||
| Impairment | 1,843 | - | ||
| Restructuring and other items | 4,224 | 20,113 | ||
| Operating income | 17,988 | 2,259 | ||
| Interest expense | 15,311 | 15,733 | ||
| Net financing expense related to employee benefit plans | 1,428 | 1,404 | ||
| Gain on disposal of property and equipment and intangible assets | (733) | (14) | ||
| Gain on derivative financial instruments | (3,235) | (4,054) | ||
| Foreign currency exchange losses | 15,472 | 995 | ||
| Loss before income taxes | (10,255) | (11,805) | ||
| Provision for income taxes | - | - | ||
| Net loss attributable to equity holders of the Company | (10,255) | (11,805) | ||
|
|
| ||
| Loss per share attributable to equity holders of the Company | ||||
| Basic | $(0.26) | $(0.29) | ||
| Diluted | $(0.26) | $(0.29) | ||
Postmedia Network Canada Corp.
Consolidated Statements of
Financial Position
(UNAUDITED)
| (In thousands of Canadian dollars) |
As at
|
As at
| ||
| Assets | ||||
| Current Assets | ||||
| Cash | 20,230 | 30,490 | ||
| Restricted cash | 12,442 | - | ||
| Accounts receivable | 100,398 | 64,871 | ||
| Inventory | 2,070 | 2,294 | ||
| Prepaid expenses and other assets | 10,933 | 9,888 | ||
| Total current assets | 146,073 | 107,543 | ||
| Non-Current Assets | ||||
| Property and equipment | 144,799 | 155,007 | ||
| Asset held-for-sale | 8,687 | 22,246 | ||
| Derivative financial instruments | 21,627 | 18,392 | ||
| Other assets | 4,641 | 17 | ||
| Intangible assets | 278,388 | 287,789 | ||
| Goodwill | 149,600 | 149,600 | ||
| Total assets | 753,815 | 740,594 | ||
| Liabilities and Equity | ||||
| Current Liabilities | ||||
| Accounts payable and accrued liabilities | 71,570 | 59,073 | ||
| Provisions | 14,107 | 15,629 | ||
| Deferred revenue | 24,726 | 24,176 | ||
| Current portion of long-term debt | 12,500 | 12,500 | ||
| Total current liabilities | 122,903 | 111,378 | ||
| Non-Current Liabilities | ||||
| Long-term debt | 483,516 | 473,800 | ||
| Employee benefit obligations and other liabilities | 136,578 | 143,157 | ||
| Provisions | 586 | 634 | ||
| Deferred income taxes | 681 | 681 | ||
| Total liabilities | 744,264 | 729,650 | ||
| Equity | ||||
| Capital stock | 371,132 | 371,132 | ||
| Contributed surplus | 9,970 | 9,890 | ||
| Deficit | (371,551) | (370,078) | ||
| Total equity | 9,551 | 10,944 | ||
| Total liabilities and equity | 753,815 | 740,594 |
Postmedia Network Canada Corp.
Consolidated Statements of
Cash Flows
(UNAUDITED)
| (In thousands of Canadian dollars) |
For the three months ended | |||
| 2014 | 2013 | |||
| Cash Generated (Utilized) by: | ||||
| Operating Activities | ||||
| Net loss attributable to equity holders of the Company | (10,255) | (11,805) | ||
| Items not affecting cash: | ||||
| Depreciation | 12,032 | 13,227 | ||
| Amortization | 9,535 | 10,412 | ||
| Impairment | 1,843 | - | ||
| Gain on derivative financial instruments | (3,235) | (4,054) | ||
| Non-cash interest | 780 | 1,485 | ||
| Gain on disposal of property and equipment and asset held-for-sale | (733) | (14) | ||
| Non-cash foreign currency exchange losses | 15,268 | 916 | ||
| Share-based compensation plans and other long-term incentive plan expense | 255 | 143 | ||
| Net financing expense relating to employee benefit plans | 1,428 | 1,404 | ||
| Non-cash compensation expense of employee benefit plans | 424 | - | ||
| Employee benefit funding in excess of compensation expense | - | (381) | ||
| Net change in non-cash operating accounts | (24,702) | (7,110) | ||
| Cash flows from operating activities | 2,640 | 4,223 | ||
| Investing Activities | ||||
Net proceeds from the sale of property and equipment and asset held-for-sale | 12,449 | 14 | ||
| Purchases of property and equipment | (1,824) | (2,988) | ||
| Purchases of intangible assets | (134) | (698) | ||
| Cash flows from (used in) investing activities | 10,491 | (3,672) | ||
| Financing activities | ||||
| Repayment of long-term debt | (6,250) | (6,250) | ||
| Restricted cash | (12,442) | - | ||
| Debt and subscription receipts financing costs | (2,170) | - | ||
| Rights offering financing costs | (2,529) | - | ||
| Cash flows used in financing activities | (23,391) | (6,250) | ||
| Net change in cash for the period | (10,260) | (5,699) | ||
| Cash at beginning of period | 30,490 | 40,812 | ||
| Cash at end of period | 20,230 | 35,113 | ||
Supplemental disclosure of operating cash flows | ||||
Interest paid | 8,485 | 9,142 | ||
Income taxes paid | - | - | ||
