TORONTO--(BUSINESS WIRE)--Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three months and year ended August 31, 2018.
Fourth Quarter Operating Results
Revenue for the quarter was $158.7 million as compared to $176.8 million in the same period in the prior year, a decrease of $18.1 million or 10.3%. The revenue decline was primarily due to decreases in print advertising revenue of $14.1 million or 17.0% and print circulation revenue of $5.7 million or 9.6%. Digital revenue increased by $2.5 million or 9.7% in the quarter with digital advertising revenue up 13.2%.
Notably, excluding the impact of the publications acquired and sold in the Company’s first quarter, revenue for the quarter decreased 7.2% relative to the same period in the prior year including decreases in print advertising revenue of 14.2%, print circulation revenue of 6.4% and an increase in digital revenue of 13.5% which includes an increase in digital advertising revenue of 17.9%.
"We are pleased to report continued traction from our strategy delivering the seventh consecutive quarter of double-digit digital advertising revenue – reaching $100 million in fiscal 2018,” said Paul Godfrey, Executive Chairman and Chief Executive Officer, Postmedia. “And as of this week, we will have redeemed an additional $8.7 million in first-lien notes bringing the total of first-lien debt repayment to near $100 million since our recapitalization in October 2016.”
Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $10.7 million or 6.5% for the quarter, relative to the same period in the prior year. The decrease was as a result of various cost reduction initiatives.
Operating income before depreciation, amortization, impairment and restructuring of $4.9 million in the quarter represents a decrease of $7.5 million relative to the same period in the prior year. The decrease is due to decreases in print advertising and circulation revenues only partially offset by increased digital revenue and operating expense decreases.
Net loss in the quarter ended August 31, 2018 was $22.8 million, as compared to net earnings of $40.3 million in the same period in the prior year. The change was primarily the result of a decrease in operating income before depreciation, amortization, impairment and restructuring and an increase in restructuring expense as compared to the same period in the prior year as well as a gain on the sale of Infomart in Q4 of fiscal 2018.
Full Year Operating Results
Revenue for the year ended August 31, 2018 was $676.3 million as compared to $754.3 million in the same period in the prior year, a decrease of $78.0 million or 10.3%. The revenue decline was primarily due to decreases in print advertising revenue of $65.0 million or 17.4% and print circulation revenue of $18.6 million or 7.8%. Digital revenue increased by $11.0 million or 10.4% year to date with digital advertising revenue up 13.1%.
Notably, excluding the impact of the publications acquired and sold in the Company’s first quarter, revenue for the year decreased 8.2% relative to the prior year including decreases in print advertising revenue of 15.6%, print circulation revenue of 5.3% and an increase in digital revenue of 13.9% which includes an increase in digital advertising revenue of 17.3%.
Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $88.8 million or 12.7% for the year ended August 31, 2018, relative to the prior year. The decrease was as a result of cost reduction initiatives as well as a compensation expense recovery of $19.9 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 $68.9 million or 9.8% for the year ended August 31, 2018, relative to the prior year.
Operating income before depreciation, amortization, impairment and restructuring of $65.4 million in year ended August 31, 2018 represents an increase of $10.8 million relative to the same period in the prior year. The increase is primarily due to the recovery related to the OIDMTC claim as well as further operating expense decreases and increases in digital revenue being partially offset by decreases in print advertising and print circulation revenues.
Net loss for the year ended August 31, 2018 was $33.9 million, as compared to net earnings of $44.8 million in the prior year. The change was primarily as a result of a gain on debt settlement and the sale of Infomart in the year ended August 31, 2017 as well as decreases in impairment and restructuring expenses.
Business Transformation Initiatives
In June 2018 the Company began implementation of a cost saving initiative aimed at further reducing compensation expenses by approximately 10% by the end of the fiscal year through a combination of voluntary and involuntary headcount reductions. The initial target has been met – savings from this program have been identified and substantially completed with the balance to be complete by the end of first quarter of fiscal 2019. A one-time charge of $13 million related to the program is reflected in restructuring and other items expense in the fourth quarter of fiscal 2018.
During the three months ended August 31, 2018, the Company implemented initiatives – including compensation expense reductions, real estate rationalization, production efficiencies and other transformation programs – which are expected to result in approximately $21 million of net annualized cost.
The Company will continue to identify and undertake ongoing cost reduction initiatives in an effort to address revenue declination in the legacy print business.
Debt Repayment
Subsequent to August 31, 2018, the Company gave notice to its first-lien noteholders of its intention to redeem first-lien debt on October 26, 2018, as required pursuant to the annual excess cash flow covenant. After this redemption of $8.7 million the Company will have $125.6 million of first-lien debt outstanding of the original $225.0 million that was issued in October 2016.
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 140 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, 2018 and 2017. 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.
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Postmedia Network Canada Corp. Consolidated Statements of Operations (UNAUDITED) |
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| (In thousands of Canadian dollars, except per share amounts) | For the three months ended | For the year ended | ||||||||||||||||||
| August 31, | August 31, | |||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| Revenues | ||||||||||||||||||||
| Print advertising | 68,781 | 82,835 | 308,557 | 373,514 | ||||||||||||||||
| Print circulation | 53,965 | 59,666 | 220,406 | 239,036 | ||||||||||||||||
| Digital | 28,871 | 26,324 | 116,422 | 105,471 | ||||||||||||||||
| Other | 7,060 | 7,988 | 30,908 | 36,243 | ||||||||||||||||
| Total revenues | 158,677 | 176,813 | 676,293 | 754,264 | ||||||||||||||||
| Expenses | ||||||||||||||||||||
| Compensation | 62,599 | 67,067 | 241,835 | 302,668 | ||||||||||||||||
| Newsprint | 9,382 | 10,591 | 39,120 | 45,905 | ||||||||||||||||
| Distribution | 31,763 | 36,598 | 131,688 | 149,930 | ||||||||||||||||
| Production | 21,155 | 19,618 | 84,050 | 75,057 | ||||||||||||||||
| Other operating | 28,873 | 30,581 | 114,219 | 126,106 | ||||||||||||||||
| Operating income before depreciation, amortization, impairment and restructuring |
4,905 |
12,358 |
65,381 |
54,598 |
||||||||||||||||
| Depreciation | 5,142 | 5,988 | 21,158 | 23,145 | ||||||||||||||||
| Amortization | 5,083 | 3,382 | 17,009 | 14,576 | ||||||||||||||||
| Impairments | - | - | 9,400 | 25,758 | ||||||||||||||||
| Restructuring and other items | 13,009 | 1,716 | 26,464 | 37,814 | ||||||||||||||||
| Operating income (loss) | (18,329 | ) | 1,272 | (8,650 | ) | (46,695 | ) | |||||||||||||
| Interest expense | 6,831 | 8,809 | 27,527 | 32,721 | ||||||||||||||||
| Gain on disposal of operations | - | - | (4,676 | ) | - | |||||||||||||||
| Gain on debt settlement | - | - | - | (78,556 | ) | |||||||||||||||
| Net financing expense related to employee benefit plans | 775 | 822 | 2,981 | 5,235 | ||||||||||||||||
| Gain on disposal of property and equipment and asset held-for-sale | (3,180 | ) | (2,229 | ) | (4,676 | ) | (2,110 | ) | ||||||||||||
| (Gain) loss on derivative financial instruments | (1,010 | ) | 701 | (1,214 | ) | (967 | ) | |||||||||||||
| Foreign currency exchange (gains) losses | 1,107 | (9,248 | ) | 5,278 | (3,862 | ) | ||||||||||||||
| Earnings (loss) before income taxes | (22,852 | ) | 2,417 | (33,870 | ) | 844 | ||||||||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||||||
| Net earnings (loss) from continuing operations | (22,852 | ) | 2,417 | (33,870 | ) | 844 | ||||||||||||||
| Net earnings from discontinued operations, net of tax of nil | - | 37,910 | - | 43,911 | ||||||||||||||||
| Net earnings (loss) attributable to equity holders of the Company | (22,852 | ) | 40,327 | (33,870 | ) | 44,755 | ||||||||||||||
| Earnings (loss) per share from continuing operations | ||||||||||||||||||||
| Basic | $ | (0.24 | ) | $ | 0.03 | $ | (0.36 | ) | $ | 0.01 | ||||||||||
| Diluted | $ | (0.24 | ) | $ | 0.03 | $ | (0.36 | ) | $ | 0.01 | ||||||||||
| Earnings per share attributable from discontinued operations | ||||||||||||||||||||
| Basic | - | $ | 0.40 | - | $ | 0.39 | ||||||||||||||
| Diluted | - | $ | 0.40 | - | $ | 0.39 | ||||||||||||||
| Earnings (loss) per share attributable to equity holders of the Company | ||||||||||||||||||||
| Basic | $ | (0.24 | ) | $ | 0.43 | $ | (0.36 | ) | $ | 0.40 | ||||||||||
| Diluted | $ | (0.24 | ) | $ | 0.43 | $ | (0.36 | ) | $ | 0.40 | ||||||||||
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Postmedia Network Canada Corp. Consolidated Statements of Financial Position (UNAUDITED) |
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| (In thousands of Canadian dollars) | As at | As at | ||||||
| August 31, 2018 | August 31, 2017 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | 26,037 | 10,848 | ||||||
| Restricted cash | 5,711 | 67,751 | ||||||
| Accounts receivable | 68,069 | 74,180 | ||||||
| Asset held-for-sale | 6,827 | 8,292 | ||||||
| Inventory | 6,219 | 6,001 | ||||||
| Prepaid expenses and other assets | 9,561 | 11,502 | ||||||
| Total current assets | 122,424 | 178,574 | ||||||
| Non-Current Assets | ||||||||
| Property and equipment | 154,465 | 194,758 | ||||||
| Derivative financial instruments | 2,479 | 1,265 | ||||||
| Other assets | - | 1,508 | ||||||
| Intangible assets | 73,895 | 85,613 | ||||||
| Total assets | 353,263 | 461,718 | ||||||
| Liabilities and Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | 62,833 | 59,778 | ||||||
| Provisions | 18,666 | 23,400 | ||||||
| Deferred revenue | 28,994 | 33,268 | ||||||
| Current portion of long-term debt | 8,718 | 79,502 | ||||||
| Total current liabilities | 119,211 | 195,948 | ||||||
| Non-Current Liabilities | ||||||||
| Long-term debt | 265,886 | 261,761 | ||||||
| Employee benefit obligations and other liabilities | 62,703 | 89,030 | ||||||
| Provisions | 526 | 1,097 | ||||||
| Total liabilities | 448,326 | 547,836 | ||||||
| Deficiency | ||||||||
| Capital stock | 810,836 | 810,836 | ||||||
| Contributed surplus | 13,589 | 10,412 | ||||||
| Deficit | (919,488 | ) | (907,366 | ) | ||||
| Total deficiency | (95,063 | ) | (86,118 | ) | ||||
| Total liabilities and deficiency | 353,263 | 461,718 | ||||||
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Postmedia Network Canada Corp. Consolidated Statements of Cash Flows (UNAUDITED) |
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| (In thousands of Canadian dollars) | For the three months | For the year ended | |||||||||||||||
| ended August 31, | August 31, | ||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||
| Cash Generated (Utilized) by: | |||||||||||||||||
| Operating Activities | |||||||||||||||||
| Net earnings (loss) attributable to equity holders of the Company | (22,852 | ) | 40,327 | (33,870 | ) | 44,755 | |||||||||||
| Items not affecting cash: | |||||||||||||||||
| Depreciation | 5,142 | 5,988 | 21,158 | 23,145 | |||||||||||||
| Amortization | 5,083 | 3,382 | 17,009 | 14,576 | |||||||||||||
| Impairments | - | - | 9,400 | 25,758 | |||||||||||||
| Gain disposal of operations | - | - | (4,676 | ) | - | ||||||||||||
| Gain on debt settlement | - | - | - | (78,556 | ) | ||||||||||||
| (Gain) loss on derivative financial instruments | (1,010 | ) | 701 | (1,214 | ) | (967 | ) | ||||||||||
| Non-cash interest | 3,941 | 4,159 | 15,204 | 13,525 | |||||||||||||
| (Gain) loss on disposal of property and equipment and asset held-for-sale | (3,180 | ) | (2,229 | ) | (4,676 | ) | (2,110 | ) | |||||||||
| Non-cash foreign currency exchange (gains) losses | 1,124 | (9,264 | ) | 5,396 | (3,312 | ) | |||||||||||
| Non-cash backstop commitment fee | - | - | - | 5,500 | |||||||||||||
| Gain on sale of discontinued operations | - | (36,387 | ) | - | (36,387 | ) | |||||||||||
| Share-based compensation plans and other long-term incentive plan expense |
295 |
- |
3,177 |
202 |
|||||||||||||
| Net financing expense relating to employee benefit plans | 775 | 822 | 2,981 | 5,235 | |||||||||||||
| Non-cash curtailment gain relating to employee benefit plans | - | (1,984 | ) | - | (24,752 | ) | |||||||||||
| Employee benefit funding in excess of compensation expense | (1,720 | ) | (5,914 | ) | (6,972 | ) | (3,951 | ) | |||||||||
| Net change in non-cash operating accounts | 38,590 | 1,242 | 3,885 | (18,991 | ) | ||||||||||||
| Cash flows from (used in) operating activities | 26,188 | 843 | 26,802 | (36,330 | ) | ||||||||||||
| Investing Activities | |||||||||||||||||
| Net proceeds from the sale of discontinued operations | - | 36,392 | - | 36,392 | |||||||||||||
| Net proceeds from the sale of property and equipment and asset held-for-sale | 6,996 | 30,888 | 16,780 | 34,884 | |||||||||||||
| Purchases of property and equipment | (326 | ) | (530 | ) | (945 | ) | (3,583 | ) | |||||||||
| Purchases of intangible assets | (1,743 | ) | (641 | ) | (2,339 | ) | (2,210 | ) | |||||||||
| Cash flows from investing activities | 4,927 | 66,109 | 13,496 | 65,483 | |||||||||||||
| Financing activities | |||||||||||||||||
| Net proceeds from issuance of long-term debt | - | - | - | 110,000 | |||||||||||||
| Repayment of long-term debt | - | (6,230 | ) | (87,149 | ) | (81,291 | ) | ||||||||||
| Repayment of ABL Facility | (9,000 | ) | - | - | - | ||||||||||||
| Restricted cash | (6,782 | ) | (65,942 | ) | 62,040 | (62,947 | ) | ||||||||||
| Debt issuance costs | - | - | - | (1,016 | ) | ||||||||||||
| Share issuance costs | - | - | - | (190 | ) | ||||||||||||
| Cash flow used in financing activities | (15,782 | ) | (72,172 | ) | (25,109 | ) | (35,444 | ) | |||||||||
| Net change in cash for the period | 15,333 | (5,220 | ) | 15,189 | (6,291 | ) | |||||||||||
| Cash at beginning of period | 10,704 | 16,068 | 10,848 | 17,139 | |||||||||||||
| Cash at end of period | 26,037 | 10,848 | 26,037 | 10,848 | |||||||||||||
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Supplemental disclosure of operating cash flows |
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Interest paid |
298 |
9 |
14,734 |
43,215 |
|||||||||||||
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Income taxes paid |
- |
- |
- |
- |
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