First quarter operating highlights
- Consolidated adjusted EBITDA1 of
$8,507,000 , representing a$4,540,000 favourable variance from the same quarter of 2019. $3,829,000 in adjusted EBITDA1 in the Broadcasting segment, a$1,349,000 (54.4%) favourable variance due primarily to the increase in adjusted EBITDA1 for the specialty channels, in particular "TVA Sports ," where the costs reflect a significant decrease of sporting events broadcast on the channel, partially offset by the increase in negative adjusted EBITDA1 for TVA Network.$664,000 in adjusted EBITDA1 in the Magazines segment, a$717,000 unfavourable variance mainly because the decrease in operating revenues was greater than the savings generated by the continuation of staff and expense rationalization plans implemented in recent quarters.$3,172,000 in adjusted EBITDA1 in the Film Production & Audiovisual Services ("MELS") segment, a$3,066,000 favourable variance caused primarily by an increase in profitability of soundstage, mobile and equipment rental services, whereas the segment's other activities recorded decreased profitability.$667,000 in adjusted EBITDA1 in the Production & Distribution segment, which sinceApril 1, 2019 has included the businesses acquired through the acquisition of the companies in the Incendo group.
"Although the COVID-19 pandemic affecting us all right now had a limited impact on our first quarter 2020 results, the Corporation had to scale down a number of its operations considerably toward the end of the quarter in response to the
___________________________ | |
1 | See definition of adjusted EBITDA below. |
"
"While the Magazines segment's operating revenues continued their decline in the first quarter of 2020, exacerbated by the current situation, our efforts to reduce operating expenses, increase operational efficiencies and prioritize our strong brands yielded an 18.4% decrease in operating expenses on a comparable basis, thus enabling the segment to maintain a positive contribution to the Corporation's operating results. In fact, we are pleased to report that, according to the most recent Vividata survey,
"The Film Production & Audiovisual Services segment's quarterly numbers were up significantly year-over-year, due primarily to the use of our soundstages and equipment by local and international producers, as well as by a major
The new Production & Distribution segment, which includes the operations of the companies in the Incendo group, has made a positive contribution to the Corporation's financial results since its acquisition. In addition to diversifying our revenue sources and expanding our presence internationally, particularly in English-language markets, the acquisition will allow us to take advantage of the anticipated strong demand for production of original content once the current crisis is resolved.
In closing, I want to express my gratitude to all of our employees at all of our business segments and across
Update on the current context related to the COVID-19 pandemic
The positive first quarter results must however be viewed in the context of the COVID-19 pandemic, an unprecedented situation with major consequences for the Canadian population and the global economy. As an essential services provider, our priority is to continue our mission of informing and entertaining the public. In that respect, we have ensured that we maintain our ongoing news services, available to all via our various broadcasting platforms, and have provided free access to our specialty news channel "LCN."
In this crisis context, we anticipate greater financial impacts over the coming quarters, which may include:
- significant reduction in advertising revenues, which will inevitably affect the Broadcasting and Magazines segments;
- increase in bad debts as a result of the difficult situation affecting some advertisers;
- suspension of all live broadcasting of sporting events held by professional leagues, which, whether postponed or not, could have a considerable impact on our content costs and revenues from such events;
- reduction in the publication frequency of some periodicals, which will affect revenues in the Magazines segment;
- suspension of most of our content production activities, which will have an impact on our MELS and Production & Distribution segments.
_____________________________ | |
1 | Source: Numeris – Quebec Franco, |
2 | Source: Vividata, Spring 2020, Total Canada, 14+, |
With that in mind, on
Given the uncertainty surrounding the duration of the pandemic and its potential impacts, we are currently unable to predict the overall effect it will have on our operating and financial results, however we believe that our current sound financial health, strong balance sheet and the steps we have taken will enable us to continue to deliver positive cash flow.
Definition
Adjusted EBITDA
In its analysis of operating results, the Corporation defines adjusted EBITDA as net income (loss) before depreciation and amortization, financial expenses, operational restructuring costs and others, income taxes and share of income of associates. Adjusted EBITDA as defined above is not a measure of results that is consistent with International Financial Reporting Standards ("IFRS"). It is not intended to be regarded as an alternative to other financial operating performance measures or to the statement of cash flows as a measure of liquidity. This measure should not be considered in isolation or as a substitute for other performance measures prepared in accordance with IFRS. This measure is used by management and the Board of Directors to evaluate the Corporation's consolidated results and the results of its segments. This measure eliminates the significant level of impairment, depreciation and amortization of tangible and intangible assets and is unaffected by the capital structure or investment activities of the Corporation and its segments. Adjusted EBITDA is also relevant because it is a significant component of the Corporation's annual incentive compensation programs. The Corporation's definition of adjusted EBITDA may not be identical to similarly titled measures reported by other companies.
Conference call for investors
Forward-looking information disclaimer
The statements in this news release that are not historical facts may be forward-looking statements and are subject to important known and unknown risks, uncertainties and assumptions which could cause the Corporation's actual results for future periods to differ materially from those set forth in the forward-looking statements. Forward-looking statements generally can be identified by the use of the conditional, the use of forward-looking terminology such as "propose," "will," "expect," "may," "anticipate," "intend," "estimate," "plan," "foresee," "believe" or the negative of these terms or variations of them or similar terminology. Certain factors that may cause actual results to differ from current expectations include seasonality, operational risks (including pricing actions by competitors and the risk of loss of key customers in the Film Production & Audiovisual Services and Production & Distribution segments), programming, content and production cost risks, credit risk, government regulation risks, government assistance risks, changes in economic conditions, fragmentation of the media landscape, risk related to the Corporation's ability to adapt to fast-paced technological change and to new delivery and storage methods, labour relation risks, and the risks related to public health emergencies, including COVID-19, as well as any urgent steps taken by government.
Investors and others are cautioned that the foregoing list of factors that may affect future results is not exhaustive and that undue reliance should not be placed on any forward-looking statements. For more information on the risks, uncertainties and assumptions that could cause the Corporation's actual results to differ from current expectations, please refer to the Corporation's public filings, available at www.sedar.com and www.groupetva.ca, including in particular the "Risks and Uncertainties" section of the Corporation's annual Management's Discussion and Analysis for the year ended
The forward-looking statements in this news release reflect the Corporation's expectations as of
The condensed consolidated financial statements, with notes, and the interim Management's Discussion and Analysis for the three-month period ended
Consolidated statements of loss and comprehensive loss | |||||
(unaudited) | |||||
(in thousands of Canadian dollars, except per-share amounts) | |||||
Three-month periods ended | |||||
Note | 2020 | 2019 | |||
Revenues | 2 | $ | 137,134 | $ | 134,141 |
Purchases of goods and services | 3 | 91,739 | 93,925 | ||
Employee costs | 36,888 | 36,249 | |||
Depreciation and amortization | 8,531 | 9,065 | |||
Financial expenses | 4 | 670 | 957 | ||
Operational restructuring costs and others | 5 | 302 | 3,168 | ||
Loss before tax recovery and share of income | (996) | (9,223) | |||
Tax recovery | (27) | (2,392) | |||
Share of income of associates | (257) | (151) | |||
Net loss and comprehensive loss | $ | (712) | $ | (6,680) | |
Net (loss) income and comprehensive (loss) income attributable to: | |||||
Shareholders | $ | (723) | $ | (6,715) | |
Non-controlling interest | 11 | 35 | |||
Basic and diluted loss per share attributable | 7 c) | $ | (0.02) | $ | (0.16) |
See accompanying notes to condensed consolidated financial statements.
Consolidated statements of changes in equity | ||||||||||||
(unaudited) | ||||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Equity attributable to shareholders | Equity | Total | ||||||||||
Capital | Contributed surplus | Retained earnings | Accumula- | |||||||||
Balance as at | $ | 207,280 | $ | 581 | $ | 59,406 | $ | 3,497 | $ | 966 | $ | 271,730 |
Net (loss) income | – | – | (6,715) | – | 35 | (6,680) | ||||||
Balance as at | 207,280 | 581 | 52,691 | 3,497 | 1,001 | 265,050 | ||||||
Net income | – | – | 23,167 | – | 195 | 23,362 | ||||||
Other comprehensive income | – | – | – | 1,777 | – | 1,777 | ||||||
Balance as at | 207,280 | 581 | 75,858 | 5,274 | 1,196 | 290,189 | ||||||
Net (loss) income | – | – | (723) | – | 11 | (712) | ||||||
Balance as at | $ | 207,280 | $ | 581 | $ | 75,135 | $ | 5,274 | $ | 1,207 | $ | 289,477 |
See accompanying notes to condensed consolidated financial statements.
Consolidated balance sheets | ||||||
(unaudited) | ||||||
(in thousands of Canadian dollars) | ||||||
Note |
|
| ||||
Assets | ||||||
Current assets | ||||||
Cash | $ | 2,880 | $ | 3,383 | ||
Accounts receivable | 136,895 | 160,552 | ||||
Income taxes | 3,957 | 2,508 | ||||
Audiovisual content | 92,164 | 88,422 | ||||
Prepaid expenses | 5,385 | 3,105 | ||||
241,281 | 257,970 | |||||
Non-current assets | ||||||
Audiovisual content | 62,415 | 54,678 | ||||
Investments | 10,855 | 10,598 | ||||
Property, plant and equipment | 171,209 | 175,653 | ||||
Right-of-use assets | 12,124 | 8,530 | ||||
Intangible assets | 27,693 | 29,311 | ||||
23,703 | 23,703 | |||||
Deferred income taxes | 16,650 | 14,703 | ||||
324,649 | 317,176 | |||||
Total assets | $ | 565,930 | $ | 575,146 | ||
Liabilities and equity | ||||||
Current liabilities | ||||||
Bank overdraft | $ | 5,416 | $ | – | ||
Accounts payable and accrued liabilities | 106,594 | 103,945 | ||||
Content rights payable | 82,522 | 83,244 | ||||
Deferred revenues | 11,331 | 16,883 | ||||
Current portion of lease liabilities | 3,508 | 3,238 | ||||
Income taxes | 837 | 309 | ||||
Short-term debt | 30,083 | 44,846 | ||||
240,291 | 252,465 | |||||
Non-current liabilities | ||||||
Lease liabilities | 11,145 | 7,978 | ||||
Other liabilities | 18,767 | 18,076 | ||||
Deferred income taxes | 6,250 | 6,438 | ||||
36,162 | 32,492 | |||||
Equity | ||||||
Capital stock | 7 | 207,280 | 207,280 | |||
Contributed surplus | 581 | 581 | ||||
Retained earnings | 75,135 | 75,858 | ||||
Accumulated other comprehensive income | 5,274 | 5,274 | ||||
Equity attributable to shareholders | 288,270 | 288,993 | ||||
Non-controlling interest | 1,207 | 1,196 | ||||
289,477 | 290,189 | |||||
Contingencies | 10 | |||||
Total liabilities and equity | $ | 565,930 | $ | 575,146 |
See accompanying notes to condensed consolidated financial statements.
Consolidated statements of cash flows | ||||||
(unaudited) | ||||||
(in thousands of Canadian dollars) | ||||||
Three-month periods ended | ||||||
Note | 2020 | 2019 | ||||
Cash flows related to operating activities | ||||||
Net loss | $ | (712) | $ | (6,680) | ||
Adjustments for: | ||||||
Depreciation and amortization | 8,531 | 9,065 | ||||
Share of income of associates | (257) | (151) | ||||
Deferred income taxes | (2,135) | (67) | ||||
Others | 22 | (40) | ||||
5,449 | 2,127 | |||||
Net change in non-cash operating assets and liabilities | 10,129 | (6,970) | ||||
Cash flows provided by (used in) operating activities | 15,578 | (4,843) | ||||
Cash flows related to investing activities | ||||||
Additions to property, plant and equipment | (4,823) | (3,882) | ||||
Additions to intangible assets | (1,033) | (1,323) | ||||
Business acquisitions | 6 | – | (23,469) | |||
Cash flows used in investing activities | (5,856) | (28,674) | ||||
Cash flows related to financing activities | ||||||
Net change in bank overdraft | 5,416 | 8,875 | ||||
Net change in revolving credit facility | (14,732) | 13,350 | ||||
Repayment of term loan | – | (2,752) | ||||
Repayment of lease liabilities | (856) | (1,103) | ||||
Others | (53) | (105) | ||||
Cash flows (used in) provided by financing activities | (10,225) | 18,265 | ||||
Net change in cash | (503) | (15,252) | ||||
Cash, beginning of period | 3,383 | 18,112 | ||||
Cash, end of period | $ | 2,880 | $ | 2,860 | ||
Interest and taxes reflected as operating activities | ||||||
Net interest paid | $ | 707 | $ | 761 | ||
Net income taxes paid | 3,029 | 1,656 |
See accompanying notes to condensed consolidated financial statements.
Notes to condensed consolidated financial statements
Three-month periods ended
(Tabular amounts are expressed in thousands of Canadian dollars, except per share and per option amounts)
The Corporation's businesses experience significant seasonality due to, among other factors, seasonal advertising patterns, consumers' viewing, reading and listening habits, demand for production services from international and local producers, and demand for content from global broadcasters. Because the Corporation depends on the sale of advertising for a significant portion of its revenues, operating results are also sensitive to prevailing economic conditions, including changes in local, regional and national economic conditions, particularly as they may affect advertising expenditures.
The COVID-19 pandemic has had a significant impact on the economic environment in
Accordingly, the results of operations for interim periods should not necessarily be considered indicative of full-year results.
1. Basis of presentation
These consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the
These condensed consolidated financial statements were approved by the Corporation's Board of Directors on
Comparative figures for the three-month period ended
2. Revenues
Three-month periods ended | ||||
2020 | 2019 | |||
Advertising services | $ | 62,116 | $ | 66,956 |
Royalties | 36,393 | 33,769 | ||
Rental, postproduction and distribution services and other services rendered(1) | 24,852 | 15,314 | ||
Product sales(2) | 13,773 | 18,102 | ||
$ | 137,134 | $ | 134,141 |
(1) | Revenues from rental of soundstages, mobiles, equipment and rental space amounted to |
(2) | Revenues from product sales include newsstand and subscription sales of magazines and sales of audiovisual content. |
3. Purchases of goods and services
Three-month periods ended | ||||
2020 | 2019 | |||
Rights and audiovisual content costs | $ | 64,999 | $ | 64,452 |
Printing and distribution | 3,675 | 5,383 | ||
Services rendered by the parent corporation: | ||||
- Commissions on advertising sales | 6,429 | 7,100 | ||
- Others | 2,242 | 2,238 | ||
Building costs | 4,098 | 4,579 | ||
Marketing, advertising and promotion | 3,770 | 4,494 | ||
Others | 6,526 | 5,679 | ||
$ | 91,739 | $ | 93,925 |
4. Financial expenses
Three-month periods ended | |||||
2020 | 2019 | ||||
Interest on short-term debt | $ | 434 | $ | 690 | |
Amortization of financing costs | 22 | 49 | |||
Interest on lease liabilities | 143 | 169 | |||
Interest expense on net defined benefit liability | 95 | 113 | |||
Foreign exchange (gain) loss | (126) | 6 | |||
Others | 102 | (70) | |||
$ | 670 | $ | 957 |
5. Operational restructuring costs and others
Three-month periods ended | ||||
2020 | 2019 | |||
Operational restructuring costs | $ | 153 | $ | 1,400 |
Others | 149 | 1,768 | ||
$ | 302 | $ | 3,168 |
Operational restructuring costs
The segment breakdown of the Corporation's operational restructuring costs in connection with the elimination of positions and the implementation of rationalization plans in the three-month periods ended
Three-month periods ended | ||||
2020 | 2019 | |||
Broadcasting | $ | 24 | $ | 313 |
Magazines | 129 | 1,084 | ||
Film Production & Audiovisual Services | – | 3 | ||
$ | 153 | $ | 1,400 |
5. Operational restructuring costs and others (continued)
Others
In the first quarter of 2020, the Corporation recorded a
During the same period of 2019, the Corporation recorded a
6. Business acquisitions
On
The acquisition is consistent with the Corporation's strategic objective of enhancing its array of television content for its viewers and advertisers. The goodwill associated with the acquisition arises mainly from the quality of the content and the expected synergies.
As a condition of approval of the transaction, the
Allocation of the purchase price was finalized during the fourth quarter of 2019.
The final breakdown of the fair value of assets and liabilities related to the acquisition is as follows:
Non-cash assets acquired | |||||
Current assets | $ | 11,997 | |||
Long-term audiovisual content | 3,893 | ||||
Property, plant and equipment | 1,720 | ||||
Intangible assets | 8,661 | ||||
Right-of-use assets | 1,469 | ||||
Deferred income taxes | 241 | ||||
4,813 | |||||
32,794 | |||||
Liabilities assumed | |||||
Current liabilities | 5,404 | ||||
Lease liabilities | 1,469 | ||||
Deferred income taxes | – | ||||
6,873 | |||||
Net assets acquired at fair value | $ | 25,921 | |||
Consideration | |||||
Cash | $ | 25,085 | |||
Investment in Canal Évasion inc., 8.3% owned by the Corporation | 836 | ||||
$ | 25,921 | ||||
(1) |
7. Capital stock
(a) Authorized capital stock
An unlimited number of Class A common shares, participating, voting, without par value.
An unlimited number of Class B shares, participating, non-voting, without par value.
An unlimited number of preferred shares, non-participating, non-voting, with a par value of
(b) Issued and outstanding capital stock
|
| |||
4,320,000 Class A common shares | $ | 72 | $ | 72 |
38,885,535 Class B shares | 207,208 | 207,208 | ||
$ | 207,280 | $ | 207,280 |
(c) Loss per share attributable to shareholders
The following table shows the computation of loss per basic and diluted share attributable to shareholders:
Three-month periods ended | ||||
2020 | 2019 | |||
Net loss attributable to shareholders | $ | (723) | $ | (6,715) |
Weighted average number of basic and diluted shares outstanding | 43,205,535 | 43,205,535 | ||
Basic and diluted loss per share attributable to shareholders | $ | (0.02) | $ | (0.16) |
The loss per diluted share calculation does not take into consideration the potential dilutive effect of stock options of the Corporation because their impact is non-dilutive.
8. Stock-based compensation and other stock-based payments
(a) Class B stock option plan for officers
As at
(b)
Three-month period ended | |||
Number | Weighted average | ||
Balance as at | 31,600 | $ | 69.19 |
Exercised | (2,800) | 66.02 | |
Balance as at | 28,800 | $ | 69.50 |
All of the
During the three-month period ended
(c) Quebecor stock option plan
As at
(d) Deferred stock unit ("DSU") and performance stock unit ("PSU") plans
8. Stock-based compensation and other stock-based payments (continued)
(d) Deferred stock unit ("DSU") and performance stock unit ("PSU") plans (continued)
The following table shows changes in outstanding DSUs and PSUs during the three-month period ended
Outstanding units | ||||
Corporation stock units | Quebecor stock units | |||
DSU | PSU | DSU | PSU | |
Balance as at | 177,256 | 131,129 | 29,150 | 16,148 |
Redeemed | – | (131,129) | – | (16,148) |
Balance as at | 177,256 | – | 29,150 | – |
During the three-month period ended
(e) Deferred stock unit ("DSU") plan for directors
As of
(f) Stock-based compensation expense
During the three-month period ended
9. Segmented information
Management made changes to the Corporation's management structure at the beginning of the year. As a result of those changes, the custom publishing, commercial print production and premedia services previously provided by the Magazines segment were combined with the Broadcasting segment's existing commercial production activities. Financial information for the comparative period has been restated to conform to the new presentation.
At the beginning of the second quarter of 2019, the Corporation reorganized its business segments to better reflect changes in its operations and management structure following the acquisition of the companies in the Incendo group on
As well, since
The Corporation's operations now consist of the following segments:
- The Broadcasting segment, which includes the operations of TVA Network, specialty services, the marketing of digital products associated with the various televisual brands, commercial production and custom publishing services;
- The Magazines segment, which through its subsidiaries, notably
TVA Publications inc. and Les Publications Charron & Cie inc., publishes magazines in various fields including the arts, entertainment, television, fashion and decorating, and markets digital products associated with the various magazine brands; - The Film Production & Audiovisual Services segment, which through its subsidiaries
Mels Studios andPostproduction G.P. and Mels Dubbing Inc. provides soundstage, mobile and production equipment rental services, as well as dubbing, postproduction and visual effects; - The Production & Distribution segment, which through the companies in the Incendo group produces and distributes television shows, movies and television series for the world market.
9. Segmented information (continued)
Three-month periods ended | ||||
2020 | 2019 | |||
Revenues | ||||
Broadcasting | $ | 108,061 | $ | 109,740 |
Magazines | 10,293 | 14,658 | ||
Film Production & Audiovisual Services | 17,982 | 12,953 | ||
Production & Distribution | 4,753 | – | ||
Intersegment items | (3,955) | (3,210) | ||
137,134 | 134,141 | |||
Adjusted EBITDA(1) | ||||
Broadcasting | 3,829 | 2,480 | ||
Magazines | 664 | 1,381 | ||
Film Production & Audiovisual Services | 3,172 | 106 | ||
Production & Distribution | 667 | – | ||
Intersegment items | 175 | – | ||
8,507 | 3,967 | |||
Depreciation and amortization | 8,531 | 9,065 | ||
Financial expenses | 670 | 957 | ||
Operational restructuring costs and others | 302 | 3,168 | ||
Loss before tax recovery and share of income of associates | $ | (996) | $ | (9,223) |
The above-noted intersegment items represent the elimination of normal course business transactions between the Corporation's business segments.
(1) | The Chief Executive Officer uses adjusted EBITDA as a measure of financial performance for assessing the performance of each of the Corporation's segments. Adjusted EBITDA is defined as net income (loss) before depreciation and amortization, financial expenses, operational restructuring costs and others, income taxes and share of income of associates. Adjusted EBITDA as defined above is not a measure of results that is consistent with IFRS. |
10. Contingencies
Lawsuits were brought by and against the Corporation, and against Quebecor and some of its subsidiaries, in connection with business disputes with a cable operator. At this stage in the proceedings, the management of the Corporation does not expect their outcome to have a material adverse effect on the Corporation's results or on its financial position.
SOURCE
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