Mr. Paul Godfrey reports
POSTMEDIA NETWORK REPORTS FOURTH QUARTER RESULTS
Postmedia Network Canada Corp. has
released financial information for the three months and year ended
Aug. 31, 2014.
Fourth quarter operating results
Net loss in the quarter
ended Aug. 31, 2014, was $49.8-million compared with a net loss of $47.9-million in the same period in the prior year.
Operating loss in the quarter was $28.1-million as compared with an
operating loss of $24.5-million in the same period in the prior year.
Operating income before depreciation, amortization, impairment and
restructuring of $15.7-million in the quarter represents a decrease of
$7.4-million (32.1 per cent), relative to the same period in the prior year. The
decrease was the result of revenue declines of $22.5-million, partially
offset by decreases in operating expenses of $15.1-million.
Revenue for the quarter was $146.8-million compared with $169.3-million in
the prior year, a decrease of 13.3 per cent. This decrease was primarily due to
a decline in print advertising revenue of $19.8-million (21.0 per cent) with the
declines occurring across all categories. Print circulation revenue
decreased $1.4-million (2.7 per cent) as a result of declines in circulation
volumes partially offset by price increases. Digital revenue decreased
$1.1-million (5.3 per cent) relative to the same period in the prior year.
Total operating expenses excluding depreciation, amortization,
impairment and restructuring decreased $15.1-million (10.3 per cent) relative to
the same period in the prior year. Expense reductions occurred in most
operating expense categories including compensation, newsprint,
distribution and other operating expenses. Production expenses increased
as a result of production of the Edmonton Journal and Calgary Herald
being outsourced in the first quarter of fiscal 2014.
Full-year operating results
Net loss in the year ended
Aug. 31, 2014, was $107.5-million compared with a net loss of $160.2-million in the prior year. The decrease in net loss was primarily the
result of a $100.0-million non-cash impairment charge in fiscal 2013.
Operating loss was $35.5-million as compared with operating loss of $77.5-million in the prior year which included the non-cash impairment charge
of $100.0-million.
Operating income before depreciation, amortization, impairment and
restructuring was $109.5-million, a decrease of $20.4-million relative
to the prior year. The decrease was due to revenue declines of $77.3-million, partially offset by decreases in operating expenses totalling
$56.9-million.
Revenue for the 12 months ended Aug. 31, 2014, was $674.3-million,
a decrease of $77.3-million (10.3 per cent) relative to the prior year. This
decrease was primarily due to a decline in print advertising revenue of
$70.1-million (15.7 per cent) with declines occurring across all categories.
Print circulation revenue decreased $1.7-million (0.9 per cent) as a result of
declines in circulation volumes partially offset by price increases.
Digital revenue decreased $3.6-million (3.9 per cent) relative to the prior year
as a result of decreases in local digital advertising revenue, digital
classified revenue and national digital advertising revenue, partially
offset by an increase in digital circulation revenue.
Total operating expenses excluding depreciation, amortization,
impairment and restructuring decreased $56.9-million (9.2 per cent) relative to
the prior year. Expense reductions occurred in most operating expense
categories including compensation, newsprint, distribution and other
operating expenses. Production expenses increased as a result of the
outsourced production of the the Edmonton Journal and Calgary Herald.
Business transformation initiatives
As announced in July,
2012, the company is implementing a three-year transformation program
that is targeted to result in operating cost savings of 15 per cent to 20 per cent. During
the three months ended Aug. 31, 2014, the company implemented
transformation initiatives which are expected to result in net
annualized cost savings of approximately $3-million. This brings total
net annualized cost savings, since the beginning of the program, to
approximately $109-million representing approximately 16 per cent of operating
costs at the time the program was announced.
The print outsourcing agreement for the production of the Vancouver
newspapers is expected to commence in February, 2015. In July, 2014, the company reached an agreement with the union representing the employees impacted
by the Vancouver newspapers outsourcing and made a payment of $17.5-million in trust to finance the restructuring payments. In addition, all
conditions were waived related to an agreement to sell the Vancouver
production facility for gross proceeds of $17.5-million with an expected
closing of June 30, 2015. Net proceeds from the sale of the Vancouver
facility will be offered to noteholders to redeem 8.25-per-cent senior secured
notes at par in accordance with the terms and conditions of the relevant
note indenture.
Acquisition of Sun Media's English-language newspapers and digital
properties
On Oct. 6, 2014, Postmedia announced that it had
entered into a definitive agreement with Quebecor Media Inc. (QMI) to
purchase Sun Media Corp.'s stable of 175 English-language
newspapers, specialty publications and digital properties, including the Sun chain of dailies, consisting of the Toronto Sun, the
Ottawa Sun, the Winnipeg Sun, the Calgary Sun and the Edmonton Sun, as
well as The London Free Press, and the free 24 Hours dailies in Toronto
and Vancouver. The purchase price is $316-million in cash, less a $10-million adjustment related primarily to real estate properties to be
disposed of by Sun Media prior to closing and other customary price
adjustments to be determined subsequent to closing. The transaction also
includes the acquisition of associated English-language digital
properties, including the Canoe portal outside of Quebec, as well as
QMI's Islington printing plant in Ontario, and 34 owned real estate
properties in Ontario, Alberta and Manitoba.
Postmedia will finance the acquisition through a combination of debt and
equity. The debt financing will be provided through the issuance of an
additional $140-million principal amount of its currently outstanding
8.25-per-cent senior secured notes due 2017 to an existing noteholder. Postmedia
intends to raise the balance of the funds required for the acquisition
by way of a rights offering of subscription receipts for gross proceeds
of $186-million, less net proceeds from real estate sales of up to $50-million, to the extent available, prior to the launch of the rights
offering. The company has entered into agreements for the sale of real
estate that it owns in Montreal and Calgary which, if completed, will be
used for this purpose. The Montreal agreement is expected to close
on Oct. 31, 2014, for gross proceeds of $12.5-million. The Calgary
agreement is subject to certain conditions, including the completion of
due diligence, and is expected to close in January, 2015.
The purchase agreement is subject to customary regulatory approvals,
including from the Competition Bureau. During the regulatory review
period, QMI will continue to operate the Sun Media properties.
Subsequent events
Subsequent to year-end, the company
received certification from the Ontario Digital Media Corp. that
digital media tax credits totalling a cash claim of $17.3-million for the
year ended Aug. 31, 2012, were eligible to be claimed. The company
intends to refile the tax return for the year ended Aug. 31, 2012, to
reflect such claim and will be subject to audit by the Canada Revenue
Agency. The digital media tax credits will be recognized as a recovery
in the company's financial statements when there is reasonable assurance
that the company has complied with the conditions attached to the claim.
On Oct. 16, 2014, the company entered into a new senior secured
asset-based revolving credit facility (the new ABL facility) for an
aggregate amount of up to $20.0-million. The new ABL facility will
mature one year from the closing date.
Management commentary
"While we continue to see the impacts
of a very challenging revenue environment, particularly with respect to
declines in print advertising, we are focused on potential growth
areas," said Paul Godfrey, president and chief executive officer. "Our four-platform
strategy is bolstered by the recent launch of entirely new products on
print, Web, tablet and smart phone platforms -- most recently in Montreal,
to be followed soon by Calgary. Subject to regulatory approval, we
believe the proposed acquisition of the Sun Media assets will strengthen
the company and the future of the news media business in Canada, putting
us in a better position to compete against non-traditional competitors
including foreign-based digital giants."
Additional information
Additional information, including
financial statements, and management's discussion and analysis, can be
found on the company's website,
on SEDAR or on the website maintained by the U.S. Securities and Exchange
Commission.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of Canadian dollars, except per-share amounts)
For the three months For the years
ended Aug. 31, ended Aug. 31,
2014 2013 2014 2013
(revised) (revised)
(1) (1)
Revenues
Print advertising $74,192 $93,968 $375,457 $445,547
Print circulation 48,009 49,359 194,176 195,899
Digital 20,266 21,408 88,023 91,606
Other 4,337 4,574 16,599 18,531
Total revenues 146,804 169,309 674,255 751,583
Expenses
Compensation 62,587 73,791 281,085 321,224
Newsprint 6,660 8,791 30,770 40,902
Distribution 24,804 25,806 101,794 107,905
Production 9,383 6,474 37,671 28,270
Other operating 27,669 31,326 113,430 123,356
Operating income before depreciation, amortization,
impairment and restructuring 15,701 23,121 109,505 129,926
Depreciation 26,332 9,613 66,646 29,949
Amortization 9,527 10,646 39,080 43,325
Impairments - 6,100 - 99,983
Restructuring and other items 7,934 21,255 39,285 34,171
Operating (loss) (28,092) (24,493) (35,506) (77,502)
Interest expense 14,777 15,133 61,914 61,900
Net financing expense related to employee benefit plans 1,404 1,868 5,617 7,458
(Gain) on disposal of property and equipment, and
intangible assets (26) (16) (257) (1,005)
(Gain) loss on derivative financial instruments 2,420 4,656 (1,590) 7,306
Foreign currency exchange losses 3,094 1,779 6,271 7,065
(Loss) before income taxes (49,761) (47,913) (107,461) (160,226)
Provision for income taxes - - - -
Net (loss) attributable to equityholders of the company (49,761) (47,913) (107,461) (160,226)
(Loss) per share
Basic $(1.24) $(1.19) $(2.67) $(3.98)
Diluted $(1.24) $(1.19) $(2.67) $(3.98)
(Loss) per share attributable to equityholders of the company
Basic $(1.24) $(1.19) $(2.67) $(3.98)
Diluted $(1.24) $(1.19) $(2.67) $(3.98)
(1) Results for the three months and year ended Aug. 31, 2013, have been revised from amounts previously
reported, as a result of the adoption of new and amended accounting standards on Sept. 1, 2013. See
note 2 of the company's consolidated financial statements for additional information.
We seek Safe Harbor.
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