Mr. Andrew MacLeod reports

POSTMEDIA REPORTS THIRD QUARTER RESULTS

Postmedia Network Canada Corp. has released financial information for the three and nine months ended May 31, 2023, which includes the results of the daily and weekly newspapers, digital properties, and parcel delivery business acquired from J.D. Irving Ltd. on March 25, 2022 (the BNI acquisition).

"A challenging economic landscape continues to affect all industries and requires a continued focus on aggressive transformation," said Andrew MacLeod, president and chief executive officer of Postmedia. "We have undertaken and continue to implement a number of important initiatives focused on a sustainable future, including the repayment of the balance on our senior secured asset-based facility -- with the strong support of our stakeholders, cost reduction initiatives -- including a companywide external spend review and support of the recent passage of Bill C-18, which will ultimately benefit publishers across Canada. We are also seeing positive indicators from our growing parcel delivery business and modest, yet positive, growth in digital subscriptions."

Third quarter operating results

Revenue for the quarter was $111.2-million as compared with $120.6-million in the same period in the prior year, representing a decrease of $9.4-million (7.8 per cent). The revenue decrease was primarily due to decreases in advertising revenue of $9.9-million (15.3 per cent) and circulation revenue of $6.7-million (15.6 per cent), partially offset by increases in parcel revenue of $4.6-million and other revenue of $2.5-million. Excluding the impact of the BNI acquisition, revenue for the three months ended May 31, 2023, was $96.2-million, a decrease of $13-million (11.9 per cent) relative to the same period in the prior year. The revenue decline, excluding the impact of the BNI acquisition, was primarily due to decreases in advertising revenue of $9.4-million (15.4 per cent) and circulation revenue of $6.7-million (16.5 per cent).

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $11.3-million, or 9.6 per cent, for the quarter ended May 31, 2023, relative to the same period in the prior year. Excluding the impact of the BNI acquisition, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $14.7-million, or 13.9 per cent. The decrease, excluding the BNI acquisition, was experienced across all expense categories.

Operating income before depreciation, amortization, impairment and restructuring in the quarter was $4.5-million, an increase of $1.9-million relative to the prior year. Excluding the impact of the BNI acquisition, operating income before depreciation, amortization, impairment and restructuring in the quarter was $5-million, an increase of $1.6-million relative to the prior year. The increase in operating income before depreciation, amortization, impairment and restructuring, excluding the impact of the BNI acquisition, is due to the decrease in operating expenses excluding depreciation, amortization, impairment and restructuring, partially offset by the decrease in total revenues.

Net loss in the quarter ended May 31, 2023, was $24.8-million, as compared with $16.8-million in the same period in the prior year. The increase in net loss was primarily the result of increases in restructuring and interest expenses and foreign exchange losses, partially offset by an increase in operating income before depreciation, amortization, impairment and restructuring, a decrease in impairment expense, a gain on derivative financial instruments and financial assets at fair value through profit and loss in the three months ended May 31, 2023, and a loss on debt refinancing in the three months ended May 31, 2022.

Year-to-date operating results

Revenue for the nine months ended May 31, 2023, was $347.2-million, as compared with $341.2-million in the same period in the prior year, an increase of $6-million, or 1.8 per cent. The revenue increase was primarily due to increases in parcel services revenue of $24.4-million and other revenue of $9.2-million, partially offset by decreases in advertising revenue of $15.8-million, or 8.3 per cent, and circulation revenue of $11.8-million, or 9.5 per cent. Excluding the impact of the BNI acquisition, revenue for the nine months ended May 31, 2023, was $299.9-million, a decrease of $29.8-million (9.1 per cent) relative to the same period in the prior year. The revenue decline, excluding the impact of the BNI acquisition, was primarily due to decreases in advertising revenue of $24.3-million (13.0 per cent) and circulation revenue of $16.4-million (13.4 per cent).

Total operating expenses excluding depreciation, amortization, impairment and restructuring increased $9.1-million, or 2.8 per cent, for the nine months ended May 31, 2023, relative to the same period in the prior year. Excluding the impact of the BNI acquisition, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $29.4-million, or 9.3 per cent. The decrease, excluding the BNI acquisition, relates to compensation, distribution and production expenses, partially offset by increases in newsprint and other operating expenses.

Operating income before depreciation, amortization, impairment and restructuring of $8.8-million in the nine months ended May 31, 2023, represents a decrease of $3-million relative to the same period in the prior year. Excluding the impact of the BNI acquisition, operating income before depreciation, amortization, impairment and restructuring was $12.1-million, a decrease of $400,000 relative to the prior year. The decrease, excluding the impact of the BNI acquisition, is due to the decrease in total revenues, partially offset by the decrease in operating expenses excluding depreciation, amortization, impairment and restructuring.

Net loss in the nine months ended May 31, 2023, was $61.5-million, as compared with $43.3-million in the same period in the prior year. The increase in net loss was primarily the result of a decrease in operating income before depreciation, amortization, impairment and restructuring, increases in depreciation, amortization, restructuring and interest expenses and foreign exchange losses, partially offset by a gain on disposal of assets held-for-sale and other assets, a decrease in loss on derivative financial instruments and financial assets at fair value through profit and loss and impairment expense, and a loss on debt refinancing in the nine months ended May 31, 2022.

Acquisition of Brunswick News Inc.

On Feb. 17, 2022, the company entered into a purchase agreement with J.D. Irving to purchase all of the issued and outstanding shares of Brunswick News Inc. (BNI). The acquisition closed on March 25, 2022, and includes BNI's daily and weekly newspapers, digital properties, and parcel delivery business. The purchase price consisted of cash consideration of $7.5-million and share consideration of 4,282,920 Class NC variable voting shares with a fair value of $7.6-million.

Debt repayment and refinancing

During the nine months ended May 31, 2023, the company redeemed $21.1-million of first-lien debt with the proceeds of asset sales. Subsequent to May 31, 2023, the company redeemed $1.6-million of first-lien debt with the proceeds of asset sales. After this redemption, the company has $24.5-million of first-lien debt outstanding of the original $225-million that was issued in October, 2016.

Subsequent to May 31, 2023, on June 30, 2023, the company repaid $27.3-million of the senior secured asset-based facility through the issuance of a $27.3-million unsecured promissory note to Chatham Asset Management LLC and certain investment funds or accounts for which Chatham or its affiliates acts as an investment adviser, subadviser or manager. The unsecured promissory note bears interest at 1 per cent paid-in-kind interest issued as additional unsecured promissory notes semi-annually on Jan. 31 and July 31 of each year, with maturity on Aug. 17, 2027. Upon issuance of the unsecured promissory note, the company has no amount drawn and availability of $30-million on the ABL (asset-based loan) facility.

Business transformation initiatives

During the three and nine months ended May 31, 2023, the company implemented cost reduction and transformation initiatives related to compensation expense reductions, real estate rationalization, production efficiencies and other programs, which are expected to result in approximately $21-million and $61-million of net annualized cost savings, respectively.

As previously stated, in fiscal 2023, the company intends to focus on key growth areas of digital advertising, digital subscriptions and parcel services. Transformation initiatives for the year ahead include a combination of streamlining resources, product mix rationalization, outsourcing where possible and real estate divestiture.

Merger speculation

On June 27, 2023, the company announced that Nordstar Capital LP, owner of Metroland Media Group and the Toronto Star, and Postmedia had entered into non-binding discussions to consider a combination of Postmedia, together with the Metroland newspapers and certain operational assets of the Toronto Star, through a potential merger transaction. On July 10, 2023, the company confirmed that discussions with Nordstar regarding a potential merger transaction have ceased as the parties were unable to come to agreement on the terms of the merger.

Additional information

Additional information, including financial statements and management discussion and analysis can be found on the company's website or on SEDAR.

About Postmedia Network Canada Corp.

Postmedia Network Canada is the holding company that owns Postmedia Network Inc., a Canadian news media company representing more than 130 brands across multiple print, on-line 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 offer advertisers and marketers compelling solutions to effectively reach target audiences. The company's expertise in home delivery and expanding distribution network powers Postmedia Parcel Services.

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