Postmedia Reports Second Quarter Results

TORONTO--()--Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three and six months ended February 28, 2017.

Second Quarter Operating Results

Net loss in the quarter ended February 28, 2017 was $26.5 million, as compared to $225.1 million in the same period in the prior year. The decrease in net loss was primarily the result of a $187.0 million non-cash impairment charge in the prior year and a decrease in interest expense.

Operating income before depreciation, amortization, impairment and restructuring of $6.0 million in the quarter represents a decrease of $6.7 million relative to the same period in the prior year. The decrease is due to revenue declines which were only partially offset by operating cost savings.

Revenue for the quarter was $180.8 million as compared to $209.1 million in the prior year, a decrease of $28.3 million (13.5%). The revenue decline was primarily due to decreases in print advertising revenue of $25.2 million (22.6%) and print circulation revenue of $5.5 million (8.7%). Digital revenue increased $2.6 million (10.3%) in the quarter.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $21.6 million (11.0%) for the quarter, relative to the same period in the prior year. The decrease was primarily related to cost reduction initiatives.

Year-to-Date Operating Results

Net loss in the six months ended February 28, 2017 was $8.6 million, as compared to $229.4 million in the same period in the prior year. The decrease in net loss was primarily the result of a $165.4 decrease in non-cash impairment charges, a gain on debt settlement of $78.6 million in the first quarter of fiscal 2017 realized as part of a recapitalization transaction and a decrease in interest expense partially offset by an increase in restructuring costs.

Operating income before depreciation, amortization, impairment and restructuring for the six months ended February 28, 2017 was $27.8 million, a decrease of $27.4 million relative to the same period in the prior year. The decrease is due to revenue declines which were only partially offset by operating cost savings.

Revenue for the six months ended February 28, 2017 was $395.6 million as compared to $460.2 million in the prior year, a decrease of $64.5 million (14.0%). The revenue decline was primarily due to decreases in print advertising revenue of $56.4 million (22.2%) and print circulation revenue of $11.6 million (8.8%). Digital revenue increased $3.9 million (7.0%) in the six months ended February 28, 2017.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $37.1 million (9.2%) for the six months ended February 28, 2017, relative to the same period in the prior year. The decrease was primarily related to cost reduction initiatives.

Business Transformation Initiatives

During the three and six months ended February 28, 2017, the Company implemented initiatives which are expected to result in $43 million and $61 million of net annualized cost savings, respectively.

The Company will continue to identify and undertake ongoing cost reduction initiatives in an effort to address revenue declination in the legacy print business.

Financing Transactions

As part of a recapitalization transaction, on October 5, 2016, the Company’s 12.5% Senior Secured Notes due 2018 were exchanged for shares of the Company that represented approximately 98% of the outstanding shares at that time. The Company issued US$88.6 million ($115.5 million) of 10.25% Second-Lien Secured Notes due 2023 and with these proceeds redeemed $77.8 million aggregate principal amount of 8.25% Senior Secured Notes due 2017 at par. The resulting $225.0 million of 8.25% Senior Secured Notes due 2017 outstanding were amended and restated such that the maturity date was extended to July 15, 2021 (“First-Lien Notes”).

During the three months ended February 28, 2017 the Company redeemed $1.1M of First-Lien Notes with net proceeds from asset sales in accordance with the terms of the Company’s First-Lien Notes indenture. An additional $1.2 million of First-Lien Notes will be redeemed April 18, 2017.

The Company entered into a senior secured asset-based revolving credit facility effective as of January 18, 2017 (“ABL Facility”) for an aggregate amount of up to $15.0 million. The ABL Facility can be used for general corporate purposes and will mature on January 18, 2019.

Management Commentary

“As we continue to transform Postmedia we are also focused on growth initiatives,” said Paul Godfrey, President and CEO, Postmedia. “We are pleased with the growth in digital revenue this quarter, particularly digital advertising revenues.”

Note: All dollar amounts are expressed in Canadian dollars unless otherwise specified.

About Postmedia Network Canada Corp.

Postmedia Network Canada Corp. (TSX:PNC.A, PNC.B) is the holding company that owns Postmedia Network Inc., a Canadian newsmedia company representing more than 200 brands across multiple print, online, and mobile platforms. Award-winning journalists and innovative product development teams bring engaging content to millions of people every week whenever and wherever they want it. This exceptional content, reach and scope offers advertisers and marketers compelling solutions to effectively reach target audiences. For more information, visit www.postmedia.com.

Forward-Looking Information

This news release may include information that is “forward-looking information” under applicable Canadian securities laws. 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 implementation and results of the Company’s transformation initiatives, the realization of anticipated cost savings. 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: competition from digital and other forms of media; the effect of economic conditions 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 labour 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, 2016 and 2015. 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   For the six months ended
  February 28,

2017

  February 29,

2016

  February 28,

2017

  February 29,

2016

 
Revenues
Print advertising 86,330 111,540 197,327 253,682
Print circulation 58,235 63,758 120,021 131,668
Digital 28,085 25,452 59,496 55,620
Other 8,149 8,334 18,805 19,194
Total revenues 180,799

209,084

395,649 460,164
Expenses
Compensation 76,745 90,067 162,747 184,806
Newsprint 10,626 11,268 23,760 25,066
Distribution 36,770 40,066 75,959 82,259
Production 17,387 16,627 36,658 34,573
Other operating 33,261 38,371 68,706 78,267
Operating income before depreciation, amortization, impairment and restructuring

6,010

12,685

27,819

55,193

Depreciation 5,558 5,492 11,986 11,139
Amortization 3,559 5,509 7,656 11,165
Impairments - 187,000 21,592 187,000
Restructuring and other items 16,806 11,089 52,789 22,884
Operating loss (19,913) (196,405) (66,204) (176,995)
Interest expense 7,982 19,053 15,883 37,773
Gain on debt settlement - - (78,556) -
Net financing expense related to employee benefit plans 1,471 1,450 2,942 2,899
(Gain) loss on disposal of property and equipment (578) 449 (65) 388
(Gain) loss on derivative financial instruments (973) 3,083 (1,156) 1,239
Foreign currency exchange (gains) losses (1,362) 4,689 3,366 10,066
Loss before income taxes (26,453) (225,129) (8,618) (229,360)
Provision for income taxes - - - -
Net loss attributable to equity holders of the Company (26,453) (225,129) (8,618) (229,360)
 
         
Loss per share attributable to equity holders of the Company
Basic $(0.28) $(0.80) $(0.11) $(0.82)
Diluted $(0.28) $(0.80) $(0.11) $(0.82)


Postmedia Network Canada Corp.
Consolidated Statements of Financial Position
(UNAUDITED)

(In thousands of Canadian dollars)   As at

February 28, 2017

  As at

August 31, 2016

 
Assets
Current Assets
Cash 25,143 17,139
Restricted cash 738 4,804
Accounts receivable 77,231 82,018
Inventory 6,437 7,036
Prepaid expenses and other assets 11,359 12,341
Total current assets 120,908 123,338
Non-Current Assets
Property and equipment 242,774 261,986
Derivative financial instruments 1,454 298
Other assets 4,448 4,339
Intangible assets 95,267 117,137
Total assets 464,851 507,098
 
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities 66,412 89,849
Provisions 39,252 16,853
Deferred revenue 35,333 36,600
Current portion of long-term debt 11,167 301,045
Total current liabilities 152,164 444,347
Non-Current Liabilities
Long-term debt 332,174 352,103
Employee benefit obligations and other liabilities 125,773 188,479
Provisions 361 611
Total liabilities 610,472 985,540
 
Deficiency
Capital stock 810,836 535,468
Contributed surplus 10,412 10,315
Deficit (966,869) (1,024,225)
Total deficiency (145,621) (478,442)
Total liabilities and deficiency 464,851 507,098


Postmedia Network Canada Corp.
Consolidated Statements of Cash Flows
(UNAUDITED)

(In thousands of Canadian dollars)   For the three months ended   For the six months ended
  February 28,

2017

  February 29,

2016

February 28,

2017

  February 29,

2016

 
Cash Generated (Utilized) by:
Operating Activities
Net loss attributable to equity holders of the Company (26,453) (225,129) (8,618) (229,360)
Items not affecting cash:
Depreciation 5,558 5,492 11,986 11,139
Amortization 3,559 5,509 7,656 11,165
Impairments - 187,000 21,592 187,000
Gain on debt settlement - - (78,556) -
(Gain) loss on derivative financial instruments (973) 3,083 (1,156) 1,239
Non-cash interest 3,367 972 5,956 2,018
Gain (loss) on disposal of property and equipment (578) 449 (65) 388
Non-cash foreign currency exchange (gains) losses (1,307) 4,791 3,920 10,065
Non-cash backstop commitment fee - - 5,500 -
Share-based compensation plans and other long-term incentive plan expense (recovery) - (41) 202 (164)
Net financing expense relating to employee benefit plans 1,471 1,450 2,942 2,899
Non-cash compensation expense of employee benefit plans 686 - 606 -
Employee benefit funding in excess of compensation expense - (563) - (1,910)
Net change in non-cash operating accounts 26,684 11,396 2,130 (2,782)
Cash flows from (used in) operating activities 12,014 (5,591) (25,905) (8,303)
 
Investing Activities
Net proceeds from the sale of property and equipment 810 1,245 1,942 1,306
Purchases of property and equipment (372) (1,193) (1,251) (1,898)
Purchases of intangible assets (404) (1,186) (778) (1,411)
Purchase of warrants - (1,200) - (1,200)
Receipt of working capital adjustment - - - 1,208
Cash flows from (used in) investing activities 34 (2,334) (87) (1,995)
 
Financing activities
Net proceeds from issuance of long-term debt - - 110,000 -
Repayment of long-term debt (1,110) - (78,894) (16,263)
Restricted cash 389 1,878 4,066 9,064
Debt issuance costs (44) - (986) -
Share issuance costs - - (190) -
Cash flow from (used in) financing activities (765) 1,878 33,996 (7,199)
 
Net change in cash for the period 11,283 (6,047) 8,004 (17,497)
Cash at beginning of period 13,860 32,363 17,139 43,813
Cash at end of period 25,143 26,316 25,143 26,316
         
         

Supplemental disclosure of operating cash flows

Interest paid

-

23,478

33,984

36,976

Income taxes paid

-

-

-

-

Contacts

Postmedia Network Canada Corp.
Media Contact
Phyllise Gelfand, 416-442-2936
Vice President, Communications
pgelfand@postmedia.com
or
Investor Contact
Lorna McLeod, 204-926-4772
Senior Vice President Shared Services
lmcleod@postmedia.com

Contacts

Postmedia Network Canada Corp.
Media Contact
Phyllise Gelfand, 416-442-2936
Vice President, Communications
pgelfand@postmedia.com
or
Investor Contact
Lorna McLeod, 204-926-4772
Senior Vice President Shared Services
lmcleod@postmedia.com