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Postmedia Reports First Quarter Results

TORONTO--(BUSINESS WIRE)-- Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three months ended November 30, 2017.

First Quarter Operating Results

Revenue for the quarter was $189.0 million as compared to $210.8 million in the same period in the prior year, a decrease of $21.8 million or 10.3%. The revenue decline was primarily due to decreases in print advertising revenue of $19.9 million or 17.9% and decreases in print circulation revenue of $3.8 million or 6.1%. Digital revenue increased by $4.0 million or 14.5% in the quarter with digital advertising revenue up 17.3%.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $26.0 million or 13.6% for the quarter, relative to the same period in the prior year. The decrease was primarily related to cost reduction initiatives.

Operating income before depreciation, amortization, impairment and restructuring of $23.9 million in the quarter represents an increase of $4.2 million or 21.2% relative to the same period in the prior year. The increase is due to operating cost savings related to cost saving initiatives, partially offset by a decrease in total revenues.

Net earnings in the quarter ended November 30, 2017 was $5.8 million, as compared to $17.8 million in the same period in the prior year. The change was primarily the result of a gain on debt settlement and impairments in the three months ended November 30, 2016 as well as a decrease in restructuring expense.

Debt Repayment

During the three months ended November 30, 2017, the Company redeemed $79.4 million aggregate principal amount of First-Lien Notes with the proceeds from various asset sales and its required annual repayment.

Business Transformation Initiatives

During the three months ended November 30, 2017, the Company implemented initiatives which are expected to result in approximately $14 million of net annualized cost savings.

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

Community Newspaper Transaction

On November 27, 2017, the Company’s subsidiary, Postmedia Network Inc. entered into an asset purchase agreement with Metroland Media Group and Free Daily News Group Inc., both subsidiaries of Torstar Corporation, (collectively, “Torstar”) to acquire 22 of Torstar’s community newspaper properties and two free daily commuter newspapers and to sell 15 of its community newspapers and two free daily commuter newspapers to Torstar. The transaction was effectively a non-cash transaction as the properties had approximately similar fair values. During the three months ended November 30, 2017, the Company recognized a gain of $4.7 million on disposal of operations which represents the difference between the fair value of the assets acquired and the carrying value of the net liabilities sold, and in addition, incurred restructuring and acquisition expenses of $5.1 million related to the Torstar Transaction.

Management Commentary

“We have a strategy and it is working,” said Paul Godfrey, Executive Chairman and Chief Executive Officer, Postmedia. “The strongest validation that our strategy is working is growth in digital advertising revenue – up for the fourth straight quarter by double-digit percentage increases. While this growth is very promising, digital revenue remains much smaller than our legacy print revenue and as such it needs time to grow. Therefore, we must remain vigilant in aligning our cost structure to the industry-wide declines in our legacy business in order to extend our runway to provide sufficient time to transform our 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/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 160 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, 2017 and 2016. 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 November 30,

2017 2016
Revenues
Print advertising 91,125 110,997
Print circulation 58,013 61,786
Digital 31,289 27,322
Other 8,563 10,656
Total revenues 188,990 210,761
Expenses
Compensation 66,364 85,421
Newsprint 10,801 13,134
Distribution 35,461 39,189
Production 22,048 19,271
Other operating 30,405 34,022
Operating income before depreciation, amortization, impairment and restructuring

23,911

19,724

Depreciation 5,335 6,428
Amortization 3,389 4,097
Impairment - 21,592
Restructuring and other items 6,924 35,983
Operating income (loss) 8,263 (48,376)
Interest expense 7,552 7,901
Gain on disposal of operations (4,676) -
Gain on debt settlement - (78,556)
Net financing expense related to employee benefit plans 735 1,471
(Gain) loss on disposal of property and equipment and asset held-for-sale (1,542) 513
Gain on derivative financial instruments (3,100) (183)
Foreign currency exchange losses 3,521 4,728
Earnings before income taxes 5,773 15,750
Provision for income taxes - -
Net earnings from continuing operations 5,773 15,750
Net earnings from discontinued operations, net of tax of nil - 2,085
Net earnings attributable to equity holders of the Company 5,773 17,835
Earnings per share from continuing operations
Basic $0.06 $0.10
Diluted $0.06 $0.10
Earnings per share from discontinued operations
Basic $0.00 $0.01
Diluted $0.00 $0.01
Earnings per share attributable to equity holders of the Company
Basic $0.06 $0.11
Diluted $0.06 $0.11


Postmedia Network Canada Corp.
Consolidated Statements of Financial Position
(UNAUDITED)

(In thousands of Canadian dollars)

As at
November 30, 2017

As at
August 31, 2017

Assets
Current Assets
Cash 14,433 10,848
Restricted cash 5,707 67,751
Accounts receivable 86,913 74,180
Asset held-for-sale - 8,292
Inventory 5,760 6,001
Prepaid expenses and other assets 10,975 11,502
Total current assets 123,788 178,574
Non-Current Assets
Property and equipment 189,536 194,758
Derivative financial instruments 4,365 1,265
Other assets - 1,508
Intangible assets 85,415 85,613
Total assets 403,104 461,718
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities 62,710 59,778
Provisions 20,660 23,400
Deferred revenue 30,253 33,268
Current portion of long-term debt 10,000 79,502
Total current liabilities 123,623 195,948
Non-Current Liabilities
Long-term debt 269,731 261,761
Employee benefit obligations and other liabilities 74,021 89,030
Provisions 1,692 1,097
Total liabilities 469,067 547,836
Deficiency
Capital stock 810,836 810,836
Contributed surplus 10,412 10,412
Deficit (887,211) (907,366)
Total deficiency (65,963) (86,118)
Total liabilities and deficiency 403,104 461,718


Postmedia Network Canada Corp.
Consolidated Statements of Cash Flows
(UNAUDITED)

(In thousands of Canadian dollars)

For the three
months ended
November 30,

2017 2016
Cash Generated (Utilized) by:
Operating Activities
Net earnings attributable to equity holders of the Company 5,773 17,835
Items not affecting cash:
Depreciation 5,335 6,428
Amortization 3,389 4,097
Impairment - 21,592
Gain on disposal of operations (4,676) -
Gain on debt settlement - (78,556)
Gain on derivative financial instruments (3,100) (183)
Non-cash interest 3,822 2,589
(Gain) loss on disposal of property and equipment and asset held-for-sale (1,542) 513
Non-cash foreign currency exchange losses 3,536 5,227
Non-cash backstop commitment fee - 5,500
Share-based compensation plans and other long-term incentive plan expense - 202
Net financing expense relating to employee benefit plans 735 1,471
Employee benefit funding in excess of compensation expense (59) (80)
Net change in non-cash operating accounts (15,671) (24,554)
Cash flows used in operating activities (2,458) (37,919)
Investing Activities
Net proceeds from the sale of property and equipment and asset held-for-sale 9,829 1,132
Purchases of property and equipment (149) (879)
Purchases of intangible assets (239) (374)
Cash flows from (used in) investing activities 9,441 (121)
Financing activities
Net proceeds from issuance of long-term debt - 110,000
Repayment of long-term debt (79,442) (77,784)
Advances from ABL Facility 14,000
Restricted cash 62,044 3,677
Debt issuance costs - (942)
Share issuance costs - (190)
Cash flow from (used in) financing activities (3,398) 34,761
Net change in cash for the period 3,585 (3,279)
Cash at beginning of period 10,848 17,139
Cash at end of period 14,433 13,860

Supplemental disclosure of operating cash flows

Interest paid

8,816

33,984

Income taxes paid

-

-

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Postmedia
Media Contact
Phyllise Gelfand, 416-442-2936
Vice President, Communications
pgelfand@postmedia.com
or
Investor Contact
Brian Bidulka, 416-383-2325
Executive Vice President and Chief Financial Officer
bbidulka@postmedia.com

Source: Postmedia Network Canada Corp.