Postmedia Reports Fourth Quarter Results

TORONTO--()--Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three months and year ended August 31, 2019.

Highlights from the Quarter

  • Continued digital growth – Eleventh consecutive quarter of double digit digital advertising revenue growth – up 10.8%.
  • Successful refinancing of our long-term debt – As a result of the refinancing transaction completed on September 9, 2019 Postmedia will not have any notes obligations maturing over approximately the next 4 years.
  • Business Transformation – Initiatives implemented in the quarter are expected to result in approximately $3 million of net annualized cost savings – in the quarter we realized a 9.4% reduction in operating costs. 1
  • Operating income before depreciation, amortization, impairment and restructuring was $13.3 million in the quarter and excluding the journalism tax credit in Fiscal 2019, represents an increase of $1.4 million.

Fourth Quarter Operating Results

Revenue for the quarter was $145.6 million as compared to $158.7 million in the same period in the prior year, representing a decrease of $13.1 million or 8.2%. The revenue decline was primarily due to decreases in print advertising revenue of $11.3 million or 16.5% and print circulation revenue of $2.8 million or 5.3%. Digital revenue increased by $2.4 million or 8.2% in the quarter with digital advertising revenue up 10.8%.

“Our overarching strategy – to grow digital revenue and extend the legacy runway – continues to deliver thanks to the hard work and dedication of the entire Postmedia team,” said Andrew MacLeod, President and Chief Executive Officer, Postmedia. “Today we are reporting the eleventh consecutive quarter of double digit digital advertising revenue growth and in the environment we operate on a daily basis, it is a proud accomplishment, indeed. Across Postmedia our award-winning journalists tell important stories every day and our development and sales teams continue to innovate on our platforms to engage audiences and deliver results for advertisers.”

Excluding the impact of the journalism tax credit in Fiscal 2019, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $14.5 million or 9.4% for the quarter, relative to the same period in the prior year. The decrease was as a result of lower newspaper circulation volumes as well as the implementation of various cost reduction initiatives.

Excluding the impact of the journalism tax credit in Fiscal 2019, operating income before depreciation, amortization, impairment and restructuring of $6.3 million in the quarter represents an increase of $1.4 million or 28.7% relative to the same period in the prior year. The increase is due to implementation of various cost reduction initiatives.

Net earnings in the quarter ended August 31, 2019 was $7.9 million, as compared to a loss of $22.9 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, decreases in depreciation and amortization expense, a decrease in restructuring and other items expense which includes a curtailment gain of $9.7 related to the Company’s employee benefit plans and foreign currency exchange gains.

Fiscal 2019 Operating Results

Revenue for the year ended August 31, 2019 was $619.6 million as compared to $676.3 million in the prior year, representing a decrease of $56.7 million or 8.4%. The revenue decline was primarily due to decreases in print advertising revenue of $49.1 million or 15.9% and decreases in print circulation revenue of $13.7 million or 6.2%. Digital revenue increased by $8.6 million or 7.4% year to date with digital advertising revenue up 9.8%.

Notably, adjusted for the impact of the publications acquired and sold in the Company’s first quarter of Fiscal 2018, revenue for the year ended August 31, 2019 decreased 7.5% relative to the same period in the prior year including decreases in print advertising revenue of 15.0%, print circulation revenue of 5.4% and an increase in digital revenue of 8.3% which includes an increase in digital advertising revenue of 10.8%.

Excluding the impact of the journalism tax credit in Fiscal 2019 and the Ontario Interactive Digital Media Tax Credit in Fiscal 2018 (collectively, the “Tax Credits”), total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $53.4 million or 8.5% for the year ended August 31, 2019, relative to the same period in the prior year. The decrease was as a result of lower newspaper circulation volumes as well as the implementation of various cost reduction initiatives.

Excluding the impact of the Tax Credits, operating income before depreciation, amortization, impairment and restructuring of $42.3 million in the year ended August 31, 2019 represents a decrease of $3.2 million or 7.1% relative to the same period in prior year. The decrease is due to decreases in print advertising and circulation revenues partially offset by an increase in digital revenue and operating expense decreases.

Net loss in the year ended August 31, 2019 was $6.3 million, as compared to $33.9 million in the same period in the prior year. The change was primarily the result of decreases in depreciation and amortization expense, decreases in restructuring and other items expense which includes a curtailment gain of $9.7 related to the Company’s employee benefit plans, an increase in gain on disposal of property and equipment and assets held-for-sale and a decrease in foreign currency exchange losses, partially offset by a gain on disposal of operations in Fiscal 2018.

Business Transformation Initiatives

During the three months ended August 31, 2019, the Company implemented initiatives – including compensation expense reductions, real estate rationalization, production efficiencies and other transformation programs – which are expected to result in approximately $3 million of net annualized cost savings.

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

Debt Refinancing

As at August 31, 2019, first-lien debt has been reduced by 58% by retiring $130.2 million of the original $225.0 million since October 2016 – bringing the total principal amount of first-lien notes outstanding to $94.8 million. On September 9, 2019, the Company completed a previously announced refinancing transaction that included the redemption of the Company’s existing first-lien notes in the outstanding principal amount of $94.8 million, plus accrued interest of $2.8 million, and terminated the amended and restated senior secured notes indenture. The Company financed the redemption through the issuance of $95.2 million aggregate principal amount of first-lien notes to Canso Investment Counsel Ltd. of Richmond Hill, Ontario, in its capacity as portfolio manager for and on behalf of certain accounts that it manages for net proceeds of approximately $93.7 million, after financing fees of approximately $1.5 million. The new first-lien notes have substantially similar terms to the existing first-lien notes with the exception of a reduction to the minimum annual excess cash flow redemption from $10.0 million to $5.0 million. In addition, the Company extended the maturity of its existing second lien notes by six months to January 15, 2024.

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, journalism tax credit, 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, 2019 and 2018. 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 year ended
August 31,

 

2019

2018

2019

2018

 

 

 

 

 

Revenues

 

 

 

 

Print advertising

57,466

68,781

259,409

308,557

Print circulation

51,125

53,965

206,665

220,406

Digital

31,232

28,871

125,066

116,422

Other

5,785

7,060

28,498

30,908

Total revenues

145,608

158,677

619,638

676,293

Expenses

 

 

 

 

Compensation

49,452

62,599

223,965

241,835

Newsprint

8,414

9,382

36,168

39,120

Distribution

29,824

31,763

120,894

131,688

Production

19,062

21,155

78,356

84,050

Other operating

25,544

28,873

110,950

114,219

Operating income before depreciation, amortization, impairment and restructuring

13,312

4,905

49,305

65,381

Depreciation

3,775

5,142

16,915

21,158

Amortization

3,675

5,083

14,315

17,009

Impairment

710

-

7,310

9,400

Restructuring and other items

(9,602)

13,009

(5,347)

26,464

Operating income (loss)

14,754

(18,329)

16,112

(8,650)

Interest expense

7,658

6,831

28,485

27,527

Gain on disposal of operations

-

-

-

(4,676)

Net financing expense related to employee benefit plans

493

775

2,115

2,981

(Gain) loss on disposal of property and equipment and assets held-for-sale

761

(3,180)

(10,685)

(4,676)

(Gain) loss on derivative financial instruments

660

(1,010)

650

(1,214)

Foreign currency exchange (gains) losses

(2,721)

1,107

2,614

5,278

Earnings (loss) before income taxes

7,903

(22,852)

(7,067)

(33,870)

Provision for income taxes

-

-

-

-

Net earnings (loss) from continuing operations

7,903

(22,852)

(7,067)

(33,870)

Net earnings from discontinued operations, net of tax of nil

-

-

791

-

Net earnings (loss) attributable to equity holders of the Company

7,903

(22,852)

(6,276)

(33,870)

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share from continuing operations

 

 

 

 

Basic

$0.08

$(0.24)

$(0.08)

$(0.36)

Diluted

$0.08

$(0.24)

$(0.08)

$(0.36)

 

 

 

 

 

Earnings per share attributable from discontinued operations

 

 

 

 

Basic

$ -

$ -

$0.01

$ -

Diluted

$ -

$ -

$0.01

$ -

 

 

 

 

 

Earnings (loss) per share attributable to equity holders of the Company

 

 

 

 

Basic

$0.08

$(0.24)

$(0.07)

$(0.36)

Diluted

$0.08

$(0.24)

$(0.07)

$(0.36)

Postmedia Network Canada Corp.

Consolidated Statements of Financial Position

(UNAUDITED)

(In thousands of Canadian dollars)

As at
August 31,

2019

As at
August 31,

2018

 

 

(revised)

Assets

 

 

Current Assets

 

 

Cash

15,464

26,037

Restricted cash

13

5,711

Trade and other receivable

72,228

68,069

Assets held-for-sale

24,475

6,827

Inventory

3,554

6,219

Prepaid expenses and other assets

10,269

9,561

Total current assets

126,003

122,424

Non-Current Assets

 

 

Property and equipment

109,860

154,465

Derivative financial instruments and other assets

2,829

2,479

Intangible assets

60,367

73,895

Total assets

299,059

353,263

 

 

 

Liabilities and Equity

 

 

Current Liabilities

 

 

Accounts payable and accrued liabilities

54,122

62,833

Provisions

5,893

18,666

Deferred revenue

25,907

28,994

Current portion of long-term debt

5,000

8,718

Total current liabilities

90,922

119,211

Non-Current Liabilities

 

 

Long-term debt

250,011

264,022

Employee benefit obligations and other liabilities

94,537

62,703

Provisions

-

526

Total liabilities

435,470

446,462

 

 

 

Deficiency

 

 

Capital stock

810,861

810,836

Contributed surplus

14,770

13,589

Deficit

(962,042)

(917,624)

Total deficiency

(136,411)

(93,199)

Total liabilities and deficiency

299,059

353,263

Postmedia Network Canada Corp.

Consolidated Statements of Cash Flows

(UNAUDITED)

(In thousands of Canadian dollars)

For the three months ended
August 31,

For the year ended
August 31,

 

2019

2018

2019

2018

 

 

 

 

 

Cash Generated (Utilized) by:

 

 

 

 

Operating Activities

 

 

 

 

Net earnings (loss) attributable to equity holders of the Company

7,903

(22,852)

(6,276)

(33,870)

Items not affecting cash:

 

 

 

 

Depreciation

3,775

5,142

16,915

21,158

Amortization

3,675

5,083

14,315

17,009

Impairment

710

-

7,310

9,400

Gain on disposal of operations

-

-

-

(4,676)

(Gain) loss on derivative financial instruments

660

(1,010)

650

(1,214)

Non-cash interest

5,736

3,941

19,446

15,204

(Gain) loss on disposal of property and equipment and assets held-for-sale

761

(3,180)

(10,685)

(4,676)

Non-cash foreign currency exchange (gains) losses

(2,727)

1,124

2,678

5,396

Gain on sale of discontinued operations

-

-

(791)

-

Share-based compensation plans expense

230

295

1,181

3,177

Net financing expense relating to employee benefit plans

493

775

2,115

2,981

Non-cash curtailment gain relating to employee benefit plans

(9,660)

-

(9,660)

-

Non-cash compensation expense of employee benefit plans

35

-

674

-

Employee benefit plan funding in excess of compensation expense

-

(1,720)

-

(6,972)

Net change in non-cash operating accounts

(6,931)

38,590

(29,259)

3,885

Cash flows from operating activities

4,660

26,188

8,613

26,802

 

 

 

 

 

Investing Activities

 

 

 

 

Net proceeds from the sale of property and equipment and assets held-for-sale

(52)

6,996

20,684

16,780

Purchases of property and equipment

(2,034)

(326)

(4,513)

(945)

Purchases of intangible assets

(156)

(1,743)

(1,497)

(2,339)

Cash flows from (used in) investing activities

(2,242)

4,927

14,674

13,496

 

 

 

 

 

Financing activities

 

 

 

 

Repayment of long-term debt

-

-

(39,583)

(87,149)

Repayments of senior secured asset-based revolving credit facility

-

(9,000)

-

-

Restricted cash

-

(6,782)

5,698

62,040

Issuance of shares

-

-

25

-

Cash flow used in financing activities

-

(15,782)

(33,860)

(25,109)

 

 

 

 

 

Net change in cash for the period

2,418

15,333

(10,573)

15,189

Cash at beginning of period

13,046

10,704

26,037

10,848

Cash at end of period

15,464

26,037

15,464

26,037

 

 

 

 

 

 

Supplemental disclosure of operating cash flows

Interest paid

19

298

10,219

14,734

Income taxes paid

-

-

-

-


1 Operating expenses excluding depreciation, amortization, impairment and restructuring as adjusted for the impact of a compensation expense recovery totaling $7.0 million related to the journalism tax credit in Fiscal 2019.

Contacts

Media Contact
Phyllise Gelfand
Vice President, Communications
(416) 442-2936
pgelfand@postmedia.com

Investor Contact
Brian Bidulka
Executive Vice President and Chief Financial Officer
(416) 383-2325
bbidulka@postmedia.com

Contacts

Media Contact
Phyllise Gelfand
Vice President, Communications
(416) 442-2936
pgelfand@postmedia.com

Investor Contact
Brian Bidulka
Executive Vice President and Chief Financial Officer
(416) 383-2325
bbidulka@postmedia.com