TORONTO--(BUSINESS WIRE)--Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three months and year ended August 31, 2014.
Fourth Quarter Operating Results
Net loss in the quarter
ended August 31, 2014 was $49.8 million compared to a net loss of $47.9
million in the same period in the prior year.
Operating loss in the quarter was $28.1 million as compared to an operating loss of $24.5 million in the same period in the prior year.
Operating income before depreciation, amortization, impairment and restructuring of $15.7 million in the quarter represents a decrease of $7.4 million (32.1%), relative to the same period in the prior year. The decrease was the result of revenue declines of $22.5 million, partially offset by decreases in operating expenses of $15.1 million.
Revenue for the quarter was $146.8 million compared to $169.3 million in the prior year, a decrease of 13.3%. This decrease was primarily due to a decline in print advertising revenue of $19.8 million (21.0%) with the declines occurring across all categories. Print circulation revenue decreased $1.4 million (2.7%) as a result of declines in circulation volumes partially offset by price increases. Digital revenue decreased $1.1 million (5.3%) relative to the same period in the prior year.
Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $15.1 million (10.3%) relative 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 Edmonton Journal and Calgary Herald being outsourced in the first quarter of fiscal 2014.
Full Year Operating Results
Net loss in the year ended
August 31, 2014 was $107.5 million compared to a net loss of $160.2
million in the prior year. The decrease in net loss was primarily the
result of a $100.0 million non-cash impairment charge in fiscal 2013.
Operating loss was $35.5 million as compared to operating loss of $77.5 million in the prior year which included the non-cash impairment charge of $100.0 million.
Operating income before depreciation, amortization, impairment and restructuring was $109.5 million, a decrease of $20.4 million relative to the prior year. The decrease was due to revenue declines of $77.3 million, partially offset by decreases in operating expenses totaling $56.9 million.
Revenue for the twelve months ended August 31, 2014 was $674.3 million, a decrease of $77.3 million (10.3%) relative to the prior year. This decrease was primarily due to a decline in print advertising revenue of $70.1 million (15.7%) with declines occurring across all categories. Print circulation revenue decreased $1.7 million (0.9%) as a result of declines in circulation volumes partially offset by price increases. Digital revenue decreased $3.6 million (3.9%) relative to the prior year as a result of decreases in local digital advertising revenue, digital classified revenue and national digital advertising revenue, partially offset by an increase in digital circulation revenue.
Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $56.9 million (9.2%) relative to 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 the outsourced production of the the Edmonton Journal and Calgary Herald.
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 August 31, 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 $109 million representing approximately 16% of operating
costs at the time the program was announced.
The print outsourcing agreement for the production of the Vancouver newspapers is expected to commence in February 2015. In July 2014, we reached an agreement with the union representing the employees impacted by the Vancouver newspapers outsourcing and made a payment of $17.5 million in trust to fund the restructuring payments. In addition, all conditions were waived related to an agreement to sell the Vancouver production facility for gross proceeds of $17.5 million with an expected closing of June 30, 2015. Net proceeds from the sale of the Vancouver facility will be offered to noteholders to redeem 8.25% Senior Secured Notes at par in accordance with the terms and conditions of the relevant notes indenture.
Acquisition of Sun Media’s English Language Newspapers and Digital
Properties
On October 6, 2014, Postmedia announced that it had
entered into a definitive agreement with Quebecor Media Inc. (“QMI”) to
purchase Sun Media Corporation’s stable of 175 English language
newspapers, specialty publications and digital properties (“Sun Media”),
including the Sun chain of dailies, consisting of The Toronto Sun, The
Ottawa Sun, The Winnipeg Sun, The Calgary Sun and The Edmonton Sun, as
well as The London Free Press and the free 24 Hours dailies in Toronto
and Vancouver. The purchase price is $316 million in cash less a $10
million adjustment related primarily to real estate properties to be
disposed of by Sun Media prior to closing, and other customary price
adjustments to be determined subsequent to closing. The transaction also
includes the acquisition of associated English language digital
properties, including the Canoe portal outside of Quebec, as well as
QMI’s Islington printing plant in Ontario, and 34 owned real estate
properties in Ontario, Alberta and Manitoba.
Postmedia will finance the acquisition through a combination of debt and equity. The debt financing will be provided through the issuance of an additional $140 million principal amount of its currently outstanding 8.25% Senior Secured Notes due 2017 to an existing noteholder. Postmedia intends to raise the balance of the funds required for the acquisition by way of a rights offering of subscription receipts for gross proceeds of $186 million, less net proceeds from real estate sales of up to $50 million, to the extent available, prior to the launch of the rights offering. The Company has entered into agreements for the sale of real estate that it owns in Montreal and Calgary which, if completed, will be used for this purpose. The Montreal agreement is expected to close October 31, 2014 for gross proceeds of $12.5 million. The Calgary agreement is subject to certain conditions, including the completion of due diligence, and is expected to close in January 2015.
The purchase agreement is subject to customary regulatory approvals, including from the Competition Bureau. During the regulatory review period, QMI will continue to operate the Sun Media properties.
Subsequent Events
Subsequent to year end, the Company
received certification from the Ontario Digital Media Corporation that
digital media tax credits totaling a cash claim of $17.3 million for the
year ended August 31, 2012 were eligible to be claimed. The Company
intends to refile the tax return for the year ended August 31, 2012 to
reflect such claim and will be subject to audit by the Canada Revenue
Agency. The digital media tax credits will be recognized as a recovery
in the Company’s financial statements when there is reasonable assurance
that the Company has complied with the conditions attached to the claim.
On October 16, 2014 the Company entered into a new senior secured asset-based revolving credit facility (the “New ABL Facility”) for an aggregate amount of up to $20.0 million. The New ABL Facility will mature one year from the closing date.
Management Commentary
“While we continue to see the impacts
of a very challenging revenue environment, particularly with respect to
declines in print advertising, we are focused on potential growth
areas,” said Paul Godfrey, President and CEO. “Our four platform
strategy is bolstered by the recent launch of entirely new products on
print, web, tablet and smartphone platforms – most recently in Montreal,
to be followed soon by Calgary. Subject to regulatory approval, we
believe the proposed acquisition of the Sun Media assets will strengthen
the Company and the future of the news media business in Canada putting
us in a better position to compete against non-traditional competitors
including foreign-based digital giants.”
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.com
or 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 August, 31 |
For the years ended August 31 |
|||||||
2014 | 2013 | 2014 | 2013 | ||||||
(revised) (1) | (revised) (1) | ||||||||
Revenues | |||||||||
Print advertising | 74,192 | 93,968 | 375,457 | 445,547 | |||||
Print circulation | 48,009 | 49,359 | 194,176 | 195,899 | |||||
Digital | 20,266 | 21,408 | 88,023 | 91,606 | |||||
Other | 4,337 | 4,574 | 16,599 | 18,531 | |||||
Total revenues | 146,804 | 169,309 | 674,255 | 751,583 | |||||
Expenses | |||||||||
Compensation | 62,587 | 73,791 | 281,085 | 321,224 | |||||
Newsprint | 6,660 | 8,791 | 30,770 | 40,902 | |||||
Distribution | 24,804 | 25,806 | 101,794 | 107,905 | |||||
Production | 9,383 | 6,474 | 37,671 | 28,270 | |||||
Other operating | 27,669 | 31,326 | 113,430 | 123,356 | |||||
Operating income before depreciation, amortization, impairment and restructuring |
15,701 |
23,121 |
109,505 |
129,926 |
|||||
Depreciation | 26,332 | 9,613 | 66,646 | 29,949 | |||||
Amortization | 9,527 | 10,646 | 39,080 | 43,325 | |||||
Impairments | - | 6,100 | - | 99,983 | |||||
Restructuring and other items | 7,934 | 21,255 | 39,285 | 34,171 | |||||
Operating loss | (28,092) | (24,493) | (35,506) | (77,502) | |||||
Interest expense | 14,777 | 15,133 | 61,914 | 61,900 | |||||
Net financing expense related to employee benefit plans | 1,404 | 1,868 | 5,617 | 7,458 | |||||
Gain on disposal of property and equipment and intangible assets | (26) | (16) | (257) | (1,005) | |||||
(Gain) loss on derivative financial instruments | 2,420 | 4,656 | (1,590) | 7,306 | |||||
Foreign currency exchange losses | 3,094 | 1,779 | 6,271 | 7,065 | |||||
Loss before income taxes | (49,761) | (47,913) | (107,461) | (160,226) | |||||
Provision for income taxes | - | - | - | - | |||||
Net loss attributable to equity holders of the Company | (49,761) | (47,913) | (107,461) | (160,226) | |||||
Loss per share | |||||||||
Basic | $(1.24) | $(1.19) | $(2.67) | $(3.98) | |||||
Diluted | $(1.24) | $(1.19) | $(2.67) | $(3.98) | |||||
Loss per share attributable to equity holders of the Company | |||||||||
Basic | $(1.24) | $(1.19) | $(2.67) | $(3.98) | |||||
Diluted | $(1.24) | $(1.19) | $(2.67) | $(3.98) |
(1) Results for the three months and year ended August 31, 2013 have been revised from amounts previously reported as a result of the adoption of new and amended accounting standards on September 1, 2013. See note 2 of our consolidated financial statements for additional information.
Postmedia Network Canada Corp.
Consolidated Statements of
Financial Position
(UNAUDITED)
(In thousands of Canadian dollars) |
As at August 31, 2014 |
As at
August 31, 2013 |
|||
(revised) (1) | |||||
Assets | |||||
Current Assets | |||||
Cash | 30,490 | 40,812 | |||
Accounts receivable | 64,871 | 82,615 | |||
Inventory | 2,294 | 3,234 | |||
Current portion of derivative financial instruments | - | 1,411 | |||
Prepaid expenses and other assets | 9,888 | 10,128 | |||
Total current assets | 107,543 | 138,200 | |||
Non-Current Assets | |||||
Property and equipment | 155,007 | 223,173 | |||
Asset held-for-sale | 22,246 | 10,530 | |||
Derivative financial instruments | 18,392 | 16,802 | |||
Other assets | 17 | 732 | |||
Intangible assets | 287,789 | 323,760 | |||
Goodwill | 149,600 | 149,600 | |||
Total assets | 740,594 | 862,797 | |||
Liabilities and Equity | |||||
Current Liabilities | |||||
Accounts payable and accrued liabilities | 59,073 | 67,618 | |||
Provisions | 15,629 | 26,097 | |||
Deferred revenue | 24,176 | 24,645 | |||
Current portion of long-term debt | 12,500 | 12,500 | |||
Total current liabilities | 111,378 | 130,860 | |||
Non-Current Liabilities | |||||
Long-term debt | 473,800 | 474,380 | |||
Other non-current liabilities | 143,157 | 121,817 | |||
Provisions | 634 | 826 | |||
Deferred income taxes | 681 | 681 | |||
Total liabilities | 729,650 | 728,564 | |||
Equity | |||||
Capital stock | 371,132 | 371,132 | |||
Contributed surplus | 9,890 | 9,020 | |||
Deficit | (370,078) | (241,925) | |||
Accumulated other comprehensive loss | - | (3,994) | |||
Total equity | 10,944 | 134,233 | |||
Total liabilities and equity | 740,594 | 862,797 |
(1) The consolidated statement of financial position as at August 31, 2013 has been revised from amounts previously reported as a result of the adoption of new and amended accounting standards on September 1, 2013. See note 2 of our consolidated financial statements for additional information.
Postmedia Network Canada Corp.
Consolidated Statements of
Cash Flows
(UNAUDITED)
(In thousands of Canadian dollars) |
For the three months ended August 31, |
For the years ended August 31, |
|||||||
2014 | 2013 | 2014 | 2013 | ||||||
(revised) (1) | (revised) (1) | ||||||||
Cash Generated (Utilized) by: | |||||||||
Operating Activities | |||||||||
Net loss attributable to equity holders of the Company | (49,761) | (47,913) | (107,461) | (160,226) | |||||
Items not affecting cash: | |||||||||
Depreciation | 26,332 | 9,613 | 66,646 | 29,949 | |||||
Amortization | 9,527 | 10,646 | 39,080 | 43,325 | |||||
Impairments | - | 6,100 | - | 99,983 | |||||
(Gain) loss on derivative financial instruments | 2,420 | 4,656 | (1,590) | 7,306 | |||||
Non-cash interest | 1,111 | 644 | 5,587 | 4,114 | |||||
Gain on disposal of property and equipment and intangible assets | (26) | (16) | (257) | (1,005) | |||||
Non-cash foreign currency exchange losses | 3,144 | 1,651 | 6,323 | 6,879 | |||||
Share-based compensation plans and other long-term incentive plan expense |
324 |
237 |
1,376 |
1,386 |
|||||
Net financing expense relating to employee benefit plans | 1,404 | 1,868 | 5,617 | 7,458 | |||||
Non-cash compensation expense of employee benefit plans | - | 100 | - | 2,587 | |||||
Employee benefit funding in excess of compensation expense | (2,440) | - | (7,151) | - | |||||
Settlement of foreign currency interest rate swap designated as a cash flow hedge |
6,149 |
- |
6,149 |
(8,976) |
|||||
Net change in non-cash operating accounts | (14,768) | 852 | 907 | 5,567 | |||||
Cash flows from operating activities | (16,584) | (11,562) | 15,226 | 38,347 | |||||
Investing Activities | |||||||||
Net proceeds from the sale of property and equipment, intangible assets and asset held-for-sale |
27 |
41 |
306 |
25,925 |
|||||
Additions to property and equipment | (1,247) | (2,152) | (10,245) | (7,566) | |||||
Additions to intangible assets |
(289) | (1,995) | (3,109) | (5,932) | |||||
Cash flows from investing activities | (1,509) | (4,106) | (13,048) | 12,427 | |||||
Financing activities | |||||||||
Repayment of long-term debt | - | - | (12,500) | (32,040) | |||||
Debt issuance costs | - | - | - | (111) | |||||
Cash flows from financing activities | - | - | (12,500) | (32,151) | |||||
Net change in cash | (18,093) | (15,668) | (10,322) | 18,623 | |||||
Cash at beginning of period | 48,583 | 56,480 | 40,812 | 22,189 | |||||
Cash at end of period | 30,490 | 40,812 | 30,490 | 40,812 | |||||
Supplemental disclosure of operating cash flows |
|
|
|
|
|||||
Interest paid |
19,249 |
19,278 |
57,236 |
53,173 |
|||||
Income taxes paid |
- |
- |
- |
- |
(1) Cash flows for the three months and year ended August 31, 2013 have been revised from amounts previously reported as a result of the adoption of new and amended accounting standards on September 1, 2013. See note 2 of our consolidated financial statements for additional information.