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, 2021.

“While we remain optimistic that Canada’s economic recovery is underway, as evidenced by Postmedia’s 38.4% digital advertising growth this quarter, the systemic industry challenges due to the dominance of global digital giants remain unchanged,” said Andrew MacLeod, President and Chief Executive Officer, Postmedia. “We look forward to Canada’s newly elected government acting swiftly on its promise to address these inequities with a legislative solution.”

Updates from the Quarter

  • Constraining Costs – While management continues to focus on overall cost savings initiatives, this quarter reflected an increase in overall operating costs1, up 2.5% from the same quarter in the previous year. Cost saving initiatives implemented in the quarter are expected to result in approximately $2 million of net annualized cost savings.
  • Maximizing Revenue – Fourth quarter revenue was up 2.4% from the same period in the prior year with total advertising revenue up 10.9% showing continued improvement each quarter since the peak of the pandemic in Q4 of fiscal 2020.
  • Preserving Liquidity – Cash management, including the impact of cost savings initiatives and government assistance has resulted in an unrestricted cash balance of $62 million as at August 31, 2021.

Fourth Quarter Operating Results

Revenue for the quarter was $107.7 million as compared to $105.2 million in the same period in the prior year, representing an increase of $2.5 million or 2.4%. The revenue increase was primarily due to increases in digital revenue of $7.0 million or 34.2%, with digital advertising revenue up 38.4%, partially offset by decreases in print advertising revenue of $0.7 million or 2.0% and print circulation revenue of $4.2 million or 9.2%.

Total operating expenses excluding depreciation, amortization, impairment and restructuring increased $18.8 million or 21.2% for the quarter, relative to the same period in the prior year. The increase was the result of increased compensation expenses, which is primarily the result of the impact of CEWS, and production costs related to the increase in digital advertising revenue, partially offset by the implementation of various cost reduction initiatives. Included in the operating expense increase is a decrease in compensation expense recovery of $16.0 million related to CEWS, partially offset by an increase in compensation recovery related to journalism tax credits of $2.5 million.

Operating income before depreciation, amortization, impairment and restructuring of $0.4 million in the quarter represents a decrease of $16.3 million relative to the same period in the prior year. The decrease is due to an increase in operating expenses excluding depreciation, amortization, impairment and restructuring partially offset by an increase in total revenues. Included in the operating expense increase is the impact of the compensation expense recoveries related to CEWS and journalism tax credits.

Net loss in the quarter ended August 31, 2021 was $28.6 million, as compared to net earnings of $13.5 million in the same period in the prior year. The change was primarily the result of the decrease in operating income before depreciation, amortization, impairment and restructuring, an increase in impairment expense and losses on derivative financial instruments and foreign exchange during the three months ended August 31, 2021.

Fiscal 2021 Operating Results

Revenue for the year ended August 31, 2021 was $442.3 million as compared to $508.4 million in the same period in the prior year, a decrease of $66.1 million or 13.0%. The revenue decline was primarily due to decreases in print advertising revenue of $39.2 million or 20.6%, decreases in print circulation revenue of $19.0 million or 10.0% and decreases in digital revenue of $5.1 million or 4.7% year to date with digital advertising revenue down 8.0%.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $35.4 million or 8.0% for the year ended August 31, 2021, relative to the same period in the prior year. The decrease was the result of lower compensation expense and newspaper circulation volumes as well as the implementation of various cost reduction initiatives. Included in the operating expense decrease is a decrease in compensation expense recovery of $17.3 million related to CEWS, partially offset by an increase in compensation recovery related to journalism tax credits of $2.4 million.

Operating income before depreciation, amortization, impairment, settlement gain and restructuring of $37.1 million in the year ended August 31, 2021 represents a decrease of $30.7 million or 45.3% relative to the prior year. The decrease is due to the decrease in total revenue partially offset by decreases in operating expenses before depreciation, amortization, impairment, settlement gains and restructuring.

Net earnings in the year ended August 31, 2021 was $33.7 million, as compared to a loss of $16.2 million in the same period in the prior year. The change was primarily the result of a non-cash settlement gain related to employee benefit plans of $63.1 million, gains on derivative financial instruments in the year ended August 31, 2021, decreases in depreciation, amortization and restructuring expenses, an increase in foreign exchange gains, partially offset by an increase in impairment expense and the decrease in operating income depreciation, amortization, impairment, settlement gains and restructuring.

COVID-19 Update

The COVID-19 pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus including travel bans, self-imposed quarantine periods and social distancing that have caused disruption to businesses resulting in an economic slowdown. The Company is generally exempt from mandates requiring closures of non-essential businesses and therefore has been able to continue operations, however, advertising revenue declines have accelerated as a result of the COVID-19 pandemic and related government measures. On April 11, 2020, the Government of Canada passed CEWS to support employers facing financial hardship as measured by certain revenue declines as a result of the COVID-19 pandemic. CEWS currently provides a reimbursement of compensation expense to October 23, 2021, provided the applicant has met the applicable criteria. During the three months and year ended August 31, 2021, the Company recognized a recovery of compensation expense of $5.0 million and $23.0 million, respectively, related to CEWS (2020 - $21.0 million and $40.3 million, respectively) and in total has recognized $63.3 million related to CEWS since the program was announced. As at August 31, 2021, the Company has a receivable related to CEWS in the amount of $0.6 million (August 31, 2020 - $13.0 million).

Debt Repayment

Subsequent to August 31, 2021, the Company gave notice to its first-lien noteholders of its intention to redeem $2.4 million of notes on November 24, 2021, as required pursuant to the annual excess cash flow requirement. After this redemption the Company will have $64.5 million of first-lien debt outstanding of the original $225.0 million that was issued in October 2016.

Business Transformation Initiatives

During the three months ended August 31, 2021, the Company implemented initiatives related to compensation expense reductions, real estate rationalization, production efficiencies and other transformation programs, which are expected to result in approximately $2 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.

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 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 120 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 impact of the COVID-19 pandemic on the Company’s business, the implementation and results of the Company’s transformation initiatives, continued benefits of historical results into future periods, the realization of anticipated cost savings, the receipt of anticipated government assistance 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.

In addition, we are subject to the risk and uncertainties related to the COVID-19 pandemic. The pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus including travel bans, self-imposed quarantine periods and social distancing that have caused disruption to businesses resulting in an economic slowdown. We are generally exempt from mandates requiring closures of non-essential businesses and therefore have been able to continue operations however, advertising revenues have declined as a result of COVID-19 pandemic and related government measures. The outbreak of contagious illness such as this can impact our operations in a number of ways including quarantined employees, travel restrictions, temporary closure of our facilities, a decrease in demand for advertising, as well as interruptions to our supply chain, including temporary closure of supplier facilities. Given the high level of uncertainty surrounding the duration of the COVID-19 pandemic it is difficult to reliably estimate its potential impact on the financial condition and results of our business. We are continuing to address the current challenges related to the COVID-19 pandemic and monitoring these challenges as they evolve so as to minimize this risk however it could have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flow. 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, 2021 and 2020. 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 year ended

 

August 31,

2021

August 31,

2020

August 31,

2021

August 31,

2020

 

 

 

 

 

Revenues

 

 

 

 

Print advertising

34,660

 

35,359

 

151,489

 

190,697

 

Print circulation

41,674

 

45,900

 

171,824

 

190,873

 

Digital

27,555

 

20,531

 

102,919

 

108,043

 

Other

3,762

 

3,373

 

16,111

 

18,793

 

Total revenues

107,651

 

105,163

 

442,343

 

508,406

 

Expenses

 

 

 

 

Compensation

41,229

 

23,018

 

155,182

 

151,180

 

Newsprint

4,257

 

4,402

 

17,506

 

22,903

 

Distribution

23,769

 

24,760

 

94,990

 

106,893

 

Production

15,766

 

12,202

 

60,486

 

63,807

 

Other operating

22,193

 

24,056

 

77,126

 

95,892

 

Operating income before depreciation, amortization, impairment, settlement gain and restructuring

437

 

16,725

 

37,053

 

67,731

 

Depreciation

2,773

 

2,831

 

11,175

 

11,647

 

Amortization

2,364

 

2,649

 

9,778

 

14,324

 

Impairment

5,000

 

800

 

26,164

 

13,307

 

Settlement gain

-

 

-

 

(63,079

)

-

 

Restructuring

1,024

 

296

 

5,920

 

14,845

 

Operating income (loss)

(10,724

)

10,149

 

47,095

 

13,608

 

Interest expense

7,280

 

8,049

 

30,407

 

30,628

 

Net financing expense related to employee benefit plans

229

 

607

 

1,324

 

2,436

 

Loss (gain) on disposal of property and equipment, assets held-for-sale and right of use assets

9

 

(912

)

(507

)

(928

)

Loss (gain) on derivative financial instruments

2,251

 

(1,140

)

(11,930

)

1,224

 

Foreign currency exchange losses (gains)

8,065

 

(9,927

)

(5,925

)

(3,599

)

Earnings (loss) before income taxes

(28,558

)

13,472

 

33,726

 

(16,153

)

Provision for income taxes

-

 

-

 

-

 

-

 

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

(28,558

)

13,472

 

33,726

 

(16,153

)

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

Basic

$(0.30

)

$0.14

 

$0.36

 

$(0.17

)

Diluted

$(0.30

)

$0.14

 

$0.34

 

$(0.17

)

Postmedia Network Canada Corp.

Consolidated Statements of Financial Position

(UNAUDITED)

(In thousands of Canadian dollars)

 

As at

August 31,

2021

 

As at

August 31,

2020

 

 

 

Assets

 

 

Current Assets

 

 

Cash

61,996

 

49,795

 

Restricted cash

437

 

3,402

 

Trade and other receivables

41,255

 

65,548

 

Assets held-for-sale

17,727

 

28,229

 

Inventory

3,348

 

3,260

 

Prepaid expenses and other assets

8,697

 

10,338

 

Total current assets

133,460

 

160,572

 

Non-Current Assets

 

 

Property and equipment

76,390

 

90,778

 

Right of use assets

35,646

 

40,857

 

Derivative financial instruments and other assets

6,914

 

3,338

 

Intangible assets

23,791

 

41,334

 

Total assets

276,201

 

336,879

 

 

 

 

Liabilities and Deficiency

 

 

Current Liabilities

 

 

Accounts payable and accrued liabilities

49,599

 

48,041

 

Provisions

2,257

 

6,856

 

Deferred revenue

22,351

 

24,369

 

Current portion of lease obligations

8,120

 

9,482

 

Current portion of long-term debt

7,409

 

20,372

 

Total current liabilities

89,736

 

109,120

 

Non-Current Liabilities

 

 

Long-term debt

248,262

 

252,983

 

Employee benefit obligations and other liabilities

44,846

 

101,862

 

Lease obligations

33,161

 

37,136

 

Total liabilities

415,912

 

501,101

 

 

 

 

Deficiency

 

 

Capital stock

810,861

 

810,861

 

Contributed surplus

16,570

 

15,925

 

Deficit

(967,142

)

(991,008

)

Total deficiency

(139,711

)

(164,222

)

Total liabilities and deficiency

276,201

 

336,879

 

Postmedia Network Canada Corp.

Consolidated Statements of Cash Flows

(UNAUDITED)

 

(In thousands of Canadian dollars)

 

For the three months ended

 

For the year ended

 

 

August 31,

2021

 

August 31,

2020

 

August 31,

2021

 

August 31,

2020

 

 

 

 

 

Cash Generated (Utilized) by:

 

 

 

 

Operating Activities

 

 

 

 

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

(28,558

)

13,472

 

33,726

 

(16,153

)

Items not affecting cash:

 

 

 

 

Depreciation

2,773

 

2,831

 

11,175

 

11,647

 

Amortization

2,364

 

2,649

 

9,778

 

14,324

 

Impairment

5,000

 

800

 

26,164

 

13,307

 

Loss (gain) on derivative financial instruments

2,251

 

(1,140

)

(11,930

)

1,224

 

Non-cash interest

5,880

 

6,001

 

23,363

 

26,490

 

Loss (gain) on disposal of property and equipment, assets held-for-sale and right of use assets

9

 

(912

)

(507

)

(928

)

Non-cash foreign currency exchange losses (gains)

8,108

 

(9,992

)

(5,880

)

(3,672

)

Share-based compensation plans

121

 

656

 

645

 

1,155

 

Net financing expense relating to employee benefit plans

229

 

607

 

1,324

 

2,436

 

Non-cash settlement gain relating to employee benefit plans

-

 

-

 

(63,079

)

-

 

Employee benefit plan funding in excess of compensation expense

(841

)

(1,375

)

(3,558

)

(3,323

)

Net change in non-cash operating accounts

14,574

 

3,095

 

17,80

 

(1,676

)

Cash flows from operating activities

11,910

 

16,692

 

39,021

 

44,831

 

 

 

 

 

 

Investing Activities

 

 

 

 

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

-

3,396

 

5,889

 

3,492

 

Purchases of property and equipment

(1,037

)

(254

)

(2,475

)

(2,457

)

Purchases of intangible assets

(272

)

(75

)

(449

)

(613

)

Net proceeds from the sale of derivative financial instruments

-

 

-

 

10,675

 

-

 

Purchases of derivative financial instruments

-

 

-

 

(1,696

)

-

 

Cash flows from (used in) investing activities

(1,309

)

3,067

 

11,944

 

422

 

 

 

 

 

 

Financing activities

 

 

 

 

Net proceeds from issuance of long-term debt

-

 

-

 

-

 

95,235

 

Repayment of long-term debt

-

 

(3,402

)

(32,305

)

(94,761

)

Restricted cash

-

 

-

 

2,965

 

(3,389

)

Debt issuance costs

-

 

-

 

-

 

(1,710

)

Lease payments

(1,967

)

(1,769

)

(9,424

)

(6,297

)

Cash flow used in financing activities

(1,967

)

(5,171

)

(38,764

)

(10,922

)

 

 

 

 

 

Net change in cash for the period

8,634

 

14,588

 

12,201

 

34,331

 

Cash at beginning of period

53,362

 

35,207

 

49,795

 

15,464

 

Cash at end of period

61,996

 

49,795

 

61,996

 

49,795

 

 

 

 

 

 

 

Supplemental disclosure of operating cash flows

 

 

 

Interest paid (received)

11

 

(13

)

7,943

 

3,993

 

Income taxes paid

-

 

-

 

-

 

-

 

 

1 Operating expenses excluding depreciation, amortization and restructuring as adjusted for the impact of the Canada Emergency Wage Subsidy (“CEWS”).

Contacts

For more information:
Media Contact
Phyllise Gelfand
Vice President, Communications
(647) 273-9287
pgelfand@postmedia.com

Investor Contact
Mary Anne Lavallee
Executive Vice President, Chief Operating Officer and Interim Chief Financial Officer
(416) 442-3448
mLavallee@postmedia.com

Contacts

For more information:
Media Contact
Phyllise Gelfand
Vice President, Communications
(647) 273-9287
pgelfand@postmedia.com

Investor Contact
Mary Anne Lavallee
Executive Vice President, Chief Operating Officer and Interim Chief Financial Officer
(416) 442-3448
mLavallee@postmedia.com