Postmedia Reports Third Quarter Results

TORONTO--()--Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three and nine months ended May 31, 2017.

Third Quarter Operating Results

Net earnings in the quarter ended May 31, 2017 was $13.0 million, as compared to a net loss of $23.7 million in the same period in the prior year. The change was primarily the result of one-time non-cash items including a gain of $22.8 million related to changes in the Company’s employee benefit plans and a decrease of $15.2 million in impairment charges as well as a decrease in interest expense as a result of a recapitalization transaction in Q1 of fiscal 2017, partially offset by unrealized foreign currency exchange losses.

Operating income before depreciation, amortization, impairment and restructuring of $20.4 million in the quarter represents an increase of $0.6 million relative to the same period in the prior year. The increase is due to increased digital revenues and operating cost savings related to cost savings initiatives.

Revenue for the quarter was $194.0 million as compared to $218.3 million in the prior year, a decrease of $24.3 million (11.1%). The revenue decline was primarily due to decreases in print advertising revenue of $22.0 million (19.1%) and print circulation revenue of $5.5 million (8.5%). Digital revenue increased $3.9 million (13.7%) in the quarter with digital advertising revenue up 22.8%.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $24.9 million (12.5%) for the quarter, relative to the same period in the prior year. The decrease was primarily related to cost savings initiatives.

Year-to-Date Operating Results

Net earnings in the nine months ended May 31, 2017 was $4.4 million, as compared to a net loss of $253.0 million in the same period in the prior year. The change was primarily the result of one-time non-cash items including a gain of $22.8 million related to changes in the Company’s employee benefit plans, a decrease of $181.2 million in impairment charges and a gain on debt settlement of $78.6 million realized as part of a recapitalization transaction as well as a decrease in interest expense, partially offset by an increase in restructuring expense.

Operating income before depreciation, amortization, impairment and restructuring for the nine months ended May 31, 2017 was $48.2 million, a decrease of $26.7 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 nine months ended May 31, 2017 was $589.7 million as compared to $678.5 million in the prior year, a decrease of $88.8 million (13.1%). The revenue decline was primarily due to decreases in print advertising revenue of $78.4 million (21.2%) and print circulation revenue of $17.2 million (8.7%). Digital revenue increased $7.7 million (9.2%) in the nine months ended May 31, 2017 with digital advertising up 15.4%.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $62.0 million (10.3%) for the nine months ended May 31, 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 nine months ended May 31, 2017, the Company implemented initiatives which are expected to result in $14 million and $75 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.

Management Commentary

“This is our second quarter of steady growth in digital advertising revenue,” said Paul Godfrey, President and CEO, Postmedia. “It is a strong endorsement of the hard work done by teams across Postmedia to accelerate our transformation and focus on maximizing new revenue opportunities.”

Infomart Transaction

On June 22, 2017, the Company announced an agreement with Meltwater News Canada Inc. to sell Infomart, its media monitoring division, for gross proceeds of approximately $38.25 million subject to certain adjustments (the “Infomart Transaction”). The net proceeds of the Infomart Transaction will be used to redeem a portion of the Company’s long-term debt. Included in the Infomart Transaction are Infomart’s media monitoring business, direct feed business and professional services operations, including clients of such services. The Infomart Transaction is expected to close on or about August 15, 2017.

Executive Appointment

Postmedia also announced today the appointment of Brian Bidulka as Executive Vice President and Chief Financial Officer. Mr. Bidulka is an experienced finance executive with a 30-year career that includes senior roles in the food & beverage, telecommunications and technology industries. Mr. Bidulka joins Postmedia on July 17.

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 and the closing of the Infomart Transaction. 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 risk the Infomart Transaction will not be completed on the terms described, or at all and the anticipated benefits and consequences will not be achieved; 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
May 31,

 

For the nine months ended
May 31,

  2017   2016   2017   2016
 
Revenues
Print advertising 93,352 115,391 290,679 369,073
Print circulation 59,349 64,860 179,370 196,528
Digital 31,894 28,041 91,390 83,661
Other 9,450 10,026 28,255 29,220
Total revenues 194,045 218,318 589,694 678,482
Expenses
Compensation 74,640 91,673 237,387 276,479
Newsprint 11,554 12,760 35,314 37,826
Distribution 37,373 40,552 113,332 122,811
Production 18,781 17,968 55,439 52,541
Other operating 31,275 35,578 99,981 113,845

Operating income before depreciation, amortization, impairment and
restructuring

20,422

19,787

48,241

74,980

Depreciation 5,171 5,280 17,157 16,419
Amortization 3,538 5,431 11,194 16,596
Impairments 4,166 20,000 25,758 207,000
Restructuring and other items (16,691) 7,373 36,098 30,257
Operating income (loss) 24,238 (18,297) (41,966) (195,292)
Interest expense 8,029 18,231 23,912 56,004
Gain on debt settlement - - (78,556) -
Net financing expense related to employee benefit plans 1,471 1,449 4,413 4,348
(Gain) loss on disposal of property and equipment 184 (147) 119 241
Gain on derivative financial instruments (512) (2,677) (1,668) (1,438)
Foreign currency exchange (gains) losses 2,020 (11,471) 5,386 (1,405)
Earnings (loss) before income taxes 13,046 (23,682) 4,428 (253,042)
Provision for income taxes - - - -
Net earnings (loss) attributable to equity holders of the Company 13,046 (23,682) 4,428 (253,042)
 
         
Earnings (loss) per share attributable to equity holders of the Company
Basic $0.14 $(0.08) $0.05 $(0.90)
Diluted $0.14 $(0.08) $0.05 $(0.90)


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

(In thousands of Canadian dollars)   As at

May 31, 2017

  As at

August 31, 2016

 
Assets
Current Assets
Cash 16,068 17,139
Restricted cash 1,809 4,804
Accounts receivable 80,837 82,018
Inventory 6,236 7,036
Prepaid expenses and other assets 11,762 12,341
Total current assets 116,712 123,338
Non-Current Assets
Property and equipment 237,167 261,986
Derivative financial instruments 1,966 298
Other assets 3,319 4,339
Intangible assets 88,354 117,137
Total assets 447,518 507,098
 
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities 62,567 89,849
Provisions 28,926 16,853
Deferred revenue 34,614 36,600
Current portion of long-term debt 11,230 301,045
Total current liabilities 137,337 444,347
Non-Current Liabilities
Long-term debt 337,906 352,103
Employee benefit obligations and other liabilities 119,781 188,479
Provisions 569 611
Total liabilities 595,593 985,540
 
Deficiency
Capital stock 810,836 535,468
Contributed surplus 10,412 10,315
Deficit (969,323) (1,024,225)
Total deficiency (148,075) (478,442)
Total liabilities and deficiency 447,518 507,098


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

(In thousands of Canadian dollars)  

For the three months ended
May 31,

 

For the nine months ended
May 31,

  2017   2016 2017   2016
Cash Generated (Utilized) by:
Operating Activities
Net earnings (loss) attributable to equity holders of the Company 13,046 (23,682) 4,428 (253,042)
Items not affecting cash:
Depreciation 5,171 5,280 17,157 16,419
Amortization 3,538 5,431 11,194 16,596
Impairments 4,166 20,000 25,758 207,000
Gain on debt settlement - - (78,556) -
Gain on derivative financial instruments (512) (2,677) (1,668) (1,438)
Non-cash interest 3,410 1,011 9,366 3,029
Gain (loss) on disposal of property and equipment 184 (147) 119 241
Non-cash foreign currency exchange (gains) losses 2,032 (11,328) 5,952 (1,263)
Non-cash backstop commitment fee - - 5,500 -

Share-based compensation plans and other long-term incentive plan expense
(recovery)

- (84) 202 (248)
Net financing expense relating to employee benefit plans 1,471 1,449 4,413 4,348
Non-cash curtailment gain relating to employee benefit plans (22,768) - (22,768) -
Non-cash compensation expense of employee benefit plans 1,357 190 1,963 -
Employee benefit funding in excess of compensation expense - - - (1,720)
Net change in non-cash operating accounts (22,363) 10,978 (20,233) 8,196
Cash flows from (used in) operating activities (11,268) 6,421 (37,173) (1,882)
 
Investing Activities
Net proceeds from the sale of property and equipment 2,054 639 3,996 1,945
Purchases of property and equipment (1,802) (4,535) (3,053) (6,433)
Purchases of intangible assets (791) (2,587) (1,569) (3,998)
Purchase of warrants - - - (1,200)
Receipt of working capital adjustment - - - 1,208
Acquisition - 85 - 85
Cash flows used in investing activities (539) (6,398) (626) (8,393)
 
Financing activities
Proceeds from issuance of long-term debt - - 110,000 -
Repayment of long-term debt (1,167) (9,733) (80,061) (25,996)
Advances from ABL Facility 5,000 - 5,000 -
Restricted cash (1,071) 4,008 2,995 13,072
Debt issuance costs (30) - (1,016) -
Share issuance costs - - (190) -
Cash flow from (used in) financing activities 2,732 (5,725) 36,728 (12,924)
 
Net change in cash for the period (9,075) (5,702) (1,071) (23,199)
Cash at beginning of period 25,143 26,316 17,139 43,813
Cash at end of period 16,068 20,614 16,068 20,614
         
Supplemental disclosure of operating cash flows
Interest paid 9,222 12,818 43,206 49,794
Income taxes received - 3,785 - 3,785

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