Postmedia Network Reports Second Quarter Results

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Postmedia Network Reports Second Quarter Results

TORONTO--(BUSINESS WIRE)-- Postmedia Network Canada Corp. ("Postmedia" or the "Company") today released financial information for the three and six months ended February 28, 2013.

Second Quarter Operating Results
Net loss in the quarter ended February 28, 2013 was $14.2 million compared to a net loss of $11.1 million in the same period in the prior year. The increase was primarily the result of foreign currency exchange losses partially offset by decreased losses on derivative financial instruments. Lower revenues in the quarter were offset by operating cost reductions.


Operating income of $5.8 million in the quarter increased $2.5 million compared to operating income of $3.3 million in the same period in the prior year.

Operating income before depreciation, amortization and restructuring of $25.2 million in the quarter represents a decrease of $0.1 million, relative to the same period in the prior year.

Revenue for the quarter was $178.8 million, a decrease of $19.8 million (10.0%) relative to the same period in the prior year. This decrease was primarily due to a decline in print advertising revenue of $16.9 million (13.8%) with the largest declines occurring in the classified and national advertising categories. Print circulation revenue decreased $3.3 million (6.5%) as a result of declines in circulation volumes partially offset by price increases. Digital revenue increased $0.4 million (1.7%) relative to the same period in the prior year.

Total operating expenses excluding depreciation, amortization and restructuring decreased $19.7 million (11.4%) relative to the same period in the prior year. Expense reductions occurred in all operating expense categories including compensation, newsprint, distribution and other operating expenses.

Year-to-Date Operating Results
Net loss in the six months ended February 28, 2013 was $5.9 million compared to net earnings of $17.3 million in the same period in the prior year. The decrease was due in part to the gain on sale of the Times Colonist in Victoria and British Columbia-based community newspaper assets to Glacier Media Inc. recorded in the same period of the previous year.

Net loss from continuing operations was $5.9 million, compared to net earnings of $3.2 million in the same period in the prior year.

Operating income was $32.5 million, a decrease of $5.0 million relative to the same period in the prior year due to a decrease in revenue partially offset by lower operating expenses.

Operating income before depreciation, amortization and restructuring was $74.3 million, a decrease of $5.6 million relative to the prior year.

Revenue for the six months ended February 28, 2013 was $390.5 million, a decrease of $39.2 million (9.1%) relative to the same period in the prior year. This decrease was primarily due to a decline in print advertising revenue of $33.6 million (12.4%) with the largest declines occurring in the classified and national advertising categories. Print circulation revenue decreased $8.3 million (7.9%) as a result of declines in circulation volumes partially offset by price increases. Digital revenue increased $2.6 million (5.9%) relative to the same period in the prior year as a result of increases in local digital advertising revenue partially offset by declines in digital classified revenue.

Total operating expenses excluding depreciation, amortization and restructuring decreased $33.6 million (9.6%) relative to the same period in the prior year. Expense reductions occurred in all operating expense categories including compensation, newsprint, distribution and other operating expenses.

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%-20%. During the three months ended February 28, 2013 the Company implemented transformation initiatives which will result in net annualized savings of approximately $16 million. This brings total net annualized cost savings, since the beginning of the program, to approximately $58 million.

Management Commentary
"As has been noted by several of our industry peers, the outlook remains unpredictable with respect to traditional revenue streams," said Paul Godfrey, President and Chief Executive Officer. "We are pleased, however, with the substance of our transformation program which to date has exceeded expectations not only on the cost savings front but also the overall workings of our organization. We expect to continue that transformation and accelerate our initiatives in new areas of revenue generation including paid content."

Also announced today, Jane Peverett has been appointed to the boards of both the Company and its subsidiary, Postmedia Network Inc.

"We are very pleased to welcome Ms. Peverett to our Boards of Directors," said Paul Godfrey, President and CEO. "Postmedia Network will benefit from Ms. Peverett's impressive financial and governance expertise."

Ms. Peverett currently serves as a director on various corporate boards including: Encana Corporation, Northwest Natural Gas Company, Canadian Imperial Bank of Commerce, the B.C. Ferry Authority, and Associated Electric & Gas Insurance Services Limited. Ms. Peverett was President & Chief Executive Officer of BC Transmission Corporation from April 2005 to January 2009, and was previously Vice-President, Corporate Services and Chief Financial Officer. In addition, Ms. Peverett was the President of Union Gas Limited from April 2002 to May 2003 after serving in various senior roles within Westcoast Energy Inc.

Note: All dollar amounts are expressed in Canadian dollars unless otherwise specified.

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, on SEDAR at www.sedar.comor on the website maintained by the U.S. Securities and Exchange Commission (the "SEC") at www.sec.gov.

About Postmedia Network Canada Corp.
Postmedia Network Canada Corp. (TSX:PNC.A, PNC.B) is the holding company that owns Postmedia Network Inc., the largest publisher by circulation of paid English-language daily newspapers in Canada, representing some of the country's oldest and best known media brands. Reaching millions of Canadians every week, Postmedia engages readers and offers advertisers and marketers integrated solutions to effectively reach target audiences through a variety of print, online, digital, and mobile platforms.

Forward-Looking Information
This news release may include information that is "forward-looking information" under applicable Canadian securities laws and "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. 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, statements regarding the implementation and results of the Company's transformation initiatives, including the realization of anticipated cost savings; competition from other newspapers and alternative 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; possible damage to the reputation of the Company's brands or trademarks; possible labor 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, 2012 and 2011. 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 six months ended
 February 28, 2013 February 29, 2012February 28, 2013 February 29, 2012
 
Revenues
Print advertising105,443122,385238,184271,753
Print circulation47,86351,20197,139105,470
Digital21,29220,93346,10543,555
Other4,2204,1239,0628,954
Total revenues178,818198,642390,490429,732
Expenses
Compensation81,17290,176164,120177,297
Newsprint9,85612,63321,96427,267
Distribution26,36530,49354,55763,198
Other operating36,24040,05275,55882,035
Operating income before depreciation, amortization and restructuring

25,185

25,288

74,291

79,935

Depreciation6,7406,51713,63012,979
Amortization10,83410,83621,56821,857
Restructuring and other items1,8144,6296,6117,611
Operating income5,7973,30632,48237,488
Interest expense15,60614,79931,77331,636
Net financing expense related to employee benefit plans3839757661,950
(Gain) loss on disposal of property and equipment(1,055)35(787)35
(Gain) loss on derivative financial instruments1,1934,6161,890(5,424)
Foreign currency exchange (gains) losses3,832(6,054)4,6986,078
Earnings (loss) before income taxes(14,162)(11,065)(5,858)3,213
Provision for income taxes----
Net earnings (loss) from continuing operations(14,162)(11,065)(5,858)3,213
Net earnings from discontinued operations, net of tax of nil---14,053
Net earnings (loss) attributable to equity holders of the Company(14,162)(11,065)(5,858)17,266
 
     
Earnings (loss) per share from continuing operations
Basic$(0.35)$(0.27)$(0.15)$0.08
Diluted$(0.35)$(0.27)$(0.15)$0.08
Earnings per share from discontinued operations
Basic---$0.35
Diluted---$0.35
Earnings (loss) per share attributable to equity holders of the Company
Basic$(0.35)$(0.27)$(0.15)$0.43
Diluted$(0.35)$(0.27)$(0.15)$0.42



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

(In thousands of Canadian dollars) As at

February 28, 2013

 As at

August 31, 2012

 
Assets
Current Assets
Cash51,51822,189
Accounts receivable88,89590,923
Inventory3,7473,829
Prepaid expenses and other assets10,06010,258
Total current assets154,220127,199
Non-Current Assets
Property and equipment256,471267,491
Asset held-for-sale-23,139
Derivative financial instruments22,21824,108
Other assets1,1661,549
Intangible assets358,612377,862
Goodwill223,500223,500
Total assets1,016,1871,044,848
 
Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities73,55065,268
Provisions21,87229,888
Deferred revenue25,46625,915
Current portion of derivative financial instruments3,2096,069
Current portion of long-term debt15,10332,153
Total current liabilities139,200159,293
Non-Current Liabilities
Long-term debt475,178467,749
Derivative financial instruments76612,369
Other non-current liabilities155,791169,413
Provisions9221,588
Deferred income taxes681681
Total liabilities772,538811,093
 
Equity
Capital stock371,132371,132
Contributed surplus8,4427,888
Deficit(128,920)(139,357)
Accumulated other comprehensive loss(7,005)(5,908)
Total equity243,649233,755
Total liabilities and equity1,016,1871,044,848



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

(In thousands of Canadian dollars) For the three months ended For the six months ended
 

February
28, 2013

 

 

February
29, 2012

February
28, 2013

 

February
29, 2012

 
Cash Generated (Utilized) by:
Operating Activities
Net earnings (loss) attributable to equity holders of the Company(14,162)(11,065)(5,858)17,266
Items not affecting cash:
Depreciation6,7406,51713,63013,142
Amortization10,83410,83621,56821,912
(Gain) loss on derivative financial instruments1,1933,0141,890(8,015)
Non-cash interest1,467232,7988,711
(Gain) loss on disposal of property and equipment(1,055)35(787)35
Non-cash foreign currency exchange (gains) losses3,854(6,805)4,6785,202
Gain on sale of discontinued operations---(17,109)
Share-based compensation plans and other long-term incentive plan expense (recovery)

57

167

935

(1,083)

Net financing expense relating to employee benefit plans3839757661,957
Non-cash compensation expense of employee benefit plans--1,052-
Employee benefit funding in excess of compensation expense(857)(3,407)-(12,847)
Settlement of foreign currency interest rate swap designated as a cash flow hedge

-

-

(8,976)

-

Net change in non-cash operating accounts12,25215,7552,238(3,204)
Cash flows from operating activities20,70616,04533,93425,967
 
Investing Activities
Net proceeds received on the sale of discontinued operations---85,890
Net proceeds from the sale of property and equipment and asset held-for-sale

931

-

25,622

-

Additions to property and equipment(1,670)(2,441)(4,306)(3,940)
Additions to intangible assets(1,667)(2,122)(2,623)(3,622)
Cash flows from investing activities(2,406)(4,563)18,69378,328
 
Financing activities
Repayment of long-term debt-(9,856)(23,187)(100,681)
Debt issuance costs(15)-(111)(37)
Cash flows from financing activities(15)(9,856)(23,298)(100,718)
 
Net change in cash18,2851,62629,329
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