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, 2018.

Second Quarter Operating Results

Revenue for the quarter was $157.6 million as compared to $176.7 million in the same period in the prior year, a decrease of $19.1 million or 10.8%. The revenue decline was primarily due to decreases in print advertising revenue of $16.3 million or 18.8% and decreases in print circulation revenue of $4.6 million or 7.9%. Digital revenue increased by $2.4 million or 10.1% in the quarter with digital advertising revenue up 12.0%.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $36.2 million or 21.0% for the quarter, relative to the same period in the prior year. The decrease was as a result of cost reduction initiatives as well as a compensation expense recovery totaling $17.0 million related to the Company’s Ontario Interactive Digital Media Tax Credit (“OIDMTC”) claim. Excluding the recovery related to the OIDMTC claim, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $19.2 million or 11.1% for the quarter, relative to the same period in the prior year.

Operating income before depreciation, amortization, impairment and restructuring of $21.1 million in the quarter represents an increase of $17.1 million relative to the same period in the prior year. The increase is due to operating expense decreases partially offset by a decrease in total revenues.

Net loss in the quarter ended February 28, 2018 was $1.3 million, as compared to $28.5 million in the same period in the prior year. The change was primarily the result of the increase in operating income before depreciation, amortization, impairment and restructuring as well as a decrease in restructuring expense.

Year-to-Date Operating Results

Revenue for the six months ended February 28, 2018 was $346.6 million as compared to $387.4 million in the same period in the prior year, a decrease of $40.9 million or 10.5%. The revenue decline was primarily due to decreases in print advertising revenue of $36.1 million or 18.3% and decreases in print circulation revenue of $8.4 million or 7.0%. Digital revenue increased by $6.4 million or 12.5% year to date with digital advertising revenue up 14.9%.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $62.2 million or 17.1% for the six months ended February 28, 2018, relative to the same period in the prior year. The decrease was as a result of cost reduction initiatives as well the compensation expense recovery related to the Company’s OIDMTC claim. Excluding the recovery related to the OIDMTC claim, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $45.2 million or 12.4% for six months ended February 28, 2018, relative to the same period in the prior year.

Operating income before depreciation, amortization, impairment and restructuring of $45.0 million in the six months ended February 28, 2018 represents an increase of $21.3 million relative to the same period in the prior year. The increase is due to operating expense decreases partially offset by a decrease in total revenues.

Net earnings in the six months ended February 28, 2018 was $4.5 million, as compared to a net loss of $8.7 million in the same period in the prior year. The change was primarily the result of a gain on debt settlement and impairment expense in the six months ended February 28, 2017 as well as a decrease in restructuring expense.

Business Transformation Initiatives

During the three months ended February 28, 2018, the Company implemented initiatives which are expected to result in approximately $5 million of net annualized cost savings.

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

“We are executing on a strategy that continues to deliver results including continued positive signs from our digital advertising initiatives,” said Paul Godfrey, Executive Chairman and Chief Executive Officer. “In addition there has been a slowing of our legacy revenue declines along with continued rigor around cost reduction initiatives.”

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 or on SEDAR at www.sedar.com.

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 160 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 identification and undertaking of ongoing cost savings initiatives. 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, 2017 and 2016. 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 February 28,

 

For the six months ended
February 28,

 

  2018   2017 2018   2017
 
Revenues
Print advertising 70,071 86,330 161,196 197,327
Print circulation 53,612 58,235 111,625 120,021
Digital 26,372 23,952 57,661 51,274
Other 7,522 8,149 16,085 18,805
Total revenues 157,577 176,666 346,567 387,427
Expenses
Compensation 49,347 76,131 115,711 161,552
Newsprint 9,057 10,626 19,858 23,760
Distribution 31,924 36,770 67,385 75,959
Production 18,952 17,387 41,000 36,658
Other operating 27,184 31,745 57,589 65,767
Operating income before depreciation, amortization, impairment and restructuring

21,113

4,007

45,024

23,731

Depreciation 5,191 5,558 10,526 11,986
Amortization 4,278 3,559 7,667 7,656
Impairment - - - 21,592
Restructuring and other items 3,570 16,806 10,494 52,789
Operating income (loss) 8,074 (21,916) 16,337 (70,292)
Interest expense 6,801 7,982 14,353 15,883
Gain on disposal of operations - - (4,676) -
Gain on debt settlement - - - (78,556)
Net financing expense related to employee benefit plans 736 1,471 1,471 2,942
Gain on disposal of property and equipment and asset held-for-sale - (578) (1,542) (65)
(Gain) loss on derivative financial instruments 2,565 (973) (535) (1,156)
Foreign currency exchange (gains) losses (776) (1,362) 2,745 3,366
Earnings (loss) before income taxes (1,252) (28,456) 4,521 (12,706)
Provision for income taxes - - - -
Net earnings (loss) from continuing operations (1,252) (28,456) 4,521 (12,706)
Net earnings from discontinued operations, net of tax of nil - 2,003 - 4,088
Net earnings (loss) attributable to equity holders of the Company (1,252) (26,453) 4,521 (8,618)
 
         
Earnings (loss) per share from continuing operations
Basic $(0.01) $(0.30) $0.05 $(0.10)
Diluted $(0.01) $(0.30) $0.05 $(0.10)
         
Earnings per share attributable from discontinued operations
Basic $ - $0.02 $ - $0.04
Diluted $ - $0.02 $ - $0.04
         
Earnings (loss) per share attributable to equity holders of the Company
Basic $(0.01) $(0.28) $0.05 $(0.06)
Diluted $(0.01) $(0.28) $0.05 $(0.06)


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

(In thousands of Canadian dollars)  

As at
February 28, 2018

 

 

As at
August 31, 2017

 

 
Assets
Current Assets
Cash 13,951 10,848
Restricted cash 5,709 67,751
Accounts receivable 88,851 74,180
Asset held-for-sale - 8,292
Inventory 6,043 6,001
Prepaid expenses and other assets 10,778 11,502
Total current assets 125,332 178,574
Non-Current Assets
Property and equipment 184,479 194,758
Derivative financial instruments 1,800 1,265
Other assets - 1,508
Intangible assets 81,327 85,613
Total assets 392,938 461,718
 
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities 54,938 59,778
Provisions 15,991 23,400
Deferred revenue 30,563 33,268
Current portion of long-term debt 22,000 79,502
Total current liabilities 123,492 195,948
Non-Current Liabilities
Long-term debt 262,025 261,761
Employee benefit obligations and other liabilities 68,238 89,030
Provisions 790 1,097
Total liabilities 454,545 547,836
 
Deficiency
Capital stock 810,836 810,836
Contributed surplus 12,942 10,412
Deficit (885,385) (907,366)
Total deficiency (61,607) (86,118)
Total liabilities and deficiency 392,938 461,718


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

(In thousands of Canadian dollars)  

For the three months
ended February 28,

 

For the six months ended
February 28,

  2018   2017 2018   2017
 
Cash Generated (Utilized) by:
Operating Activities
Net earnings (loss) attributable to equity holders of the Company (1,252) (26,453) 4,521 (8,618)
Items not affecting cash:
Depreciation 5,191 5,558 10,526 11,986
Amortization 4,278 3,559 7,667 7,656
Impairment - - - 21,592
Gain on disposal of operations - - (4,676) -
Gain on debt settlement - - - (78,556)
(Gain) loss on derivative financial instruments 2,565 (973) (535) (1,156)
Non-cash interest 3,655 3,367 7,477 5,956
Gain on disposal of property and equipment and asset held-for-sale - (578) (1,542) (65)
Non-cash foreign currency exchange (gains) losses (730) (1,307) 2,806 3,920
Non-cash backstop commitment fee - - - 5,500
Share-based compensation plans and other long-term incentive plan expense

2,530

-

2,530

202

Net financing expense relating to employee benefit plans 736 1,471 1,471 2,942
Non-cash compensation expense of employee benefit plans - 686 - 606
Employee benefit plan funding in excess of compensation expense (3,741) - (3,800) -
Net change in non-cash operating accounts (11,388) 26,684 (27,059) 2,130
Cash flows from (used in) operating activities 1,844 12,014 (614) (25,905)
 
Investing Activities
Net proceeds from the sale of property and equipment and asset held-for-sale

-

810

9,829

1,942

Purchases of property and equipment (134) (372) (283) (1,251)
Purchases of intangible assets (192) (404) (429) (778)
Cash flows from (used in) investing activities (324) 34 9,117 (87)
 
Financing activities
Net proceeds from issuance of long-term debt - - - 110,000
Repayment of long-term debt - (1,110) (79,442) (78,894)
Advances from (repayments of) ABL Facility (2,000) - 12,000 -
Restricted cash (2) 389 62,042 4,066
Debt issuance costs - (44) - (986)
Share issuance costs - - - (190)
Cash flow from (used in) financing activities (2,002) (765) (5,400) 33,996
 
Net change in cash for the period (482) 11,283 3,103 8,004
Cash at beginning of period 14,433 13,860 10,848 17,139
Cash at end of period 13,951 25,143 13,951 25,143
         
         

Supplemental disclosure of operating cash flows

Interest paid

87

-

8,903

33,984

Income taxes paid

-

-

-

-

 

Contacts

Postmedia
Media Contact
Phyllise Gelfand, 416-442-2936
Vice President, Communications
pgelfand@postmedia.com
or
Investor Contact
Brian Bidulka, 416-383-2325
Executive Vice President and Chief Financial Officer
bbidulka@postmedia.com

Contacts

Postmedia
Media Contact
Phyllise Gelfand, 416-442-2936
Vice President, Communications
pgelfand@postmedia.com
or
Investor Contact
Brian Bidulka, 416-383-2325
Executive Vice President and Chief Financial Officer
bbidulka@postmedia.com