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Press release from Business Wire

Postmedia Network Reports Fourth Quarter Results

Thursday, October 25, 2012

Postmedia Network Reports Fourth Quarter Results13:56 EDT Thursday, October 25, 2012 TORONTO (Business Wire) -- Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the fourth quarter and year ended August 31, 2012. Fourth Quarter Operating Results Net loss in the quarter ended August 31, 2012 was $28.4 million compared to a net loss of $0.4 million in the same period in the prior year. Contributing to the larger loss was a non-cash loss on debt repayment of $9.2 million relating to unamortized financing fees as a result of the refinancing of the Company's term loan in August, increased restructuring costs, and lower revenue partially offset by reduced operating costs. Net loss from continuing operations in the quarter was $28.4 million compared to a net loss from continuing operations of $0.8 million in the same period in the prior year. An operating loss of $2.3 million in the quarter compares with operating income of $12.7 million in the same period in the prior year. The decrease was due to an increase in restructuring expenses as a result of the business transformation initiatives announced previously and a decline in revenue, partially offset by lower operating costs. Operating income before depreciation, amortization and restructuring of $28.2 million in the quarter represents a decrease of $5.4 million, relative to the same period in the prior year. Revenue for the quarter totaled $190.1 million, a decrease of $12.0 million (or 5.9%) relative to the same period in the prior year. The decrease in the current quarter was primarily due to a decrease in print advertising revenue of $10.1 million (or 8.3%) with the largest declines occurring in the classified category. Print circulation revenue decreased $3.2 million (or 5.9%) and digital revenue increased $0.7 million (or 3.5%) relative to the same period in the prior year. Total operating expenses excluding depreciation, amortization and restructuring in the quarter decreased $6.7 million (or 4.0%) relative to the same period in the prior year. Operating expenses decreased across all categories other than restructuring. Full Year Operating Results Net loss in the year ended August 31, 2012 was $23.2 million compared to a net loss of $9.6 million in the prior year. The increased net loss is due to the increase in net loss from continuing operations partially offset by the gain on sale of the Times Colonist in Victoria and British Columbia based community newspaper assets. Net loss from continuing operations was $37.3 million, compared to a net loss from continuing operations of $12.2 million in the prior year. The increased net loss from continuing operations is primarily the result of decreased operating income due to weakness in print advertising revenue. Operating income before depreciation, amortization and restructuring in the year of $144.3 million represents a decrease of $44.9 million relative to the prior year due to a decrease in revenue partially offset by lower operating expenses. Revenue for the year was $831.9 million, a decrease of $67.0 million (or 7.5%) relative to the prior year. Print advertising revenue decreased $58.9 million (or 10.3%) with the most significant declines occurring in the national advertising category. Print circulation revenue decreased $10.1 million (or 4.6%) with volume declines being partially offset by a higher price per copy. Digital revenue increased $2.0 million as gains in local digital advertising and Infomart revenue more than offset the weakness in national digital advertising revenue. Total operating expenses excluding depreciation, amortization and restructuring in the year decreased $22.1 million (or 3.1%) relative to the prior year. Expense reductions were due to lower compensation, newsprint and distribution expenses partially offset by increases in other operating expenses. Business Transformation Initiatives Since its formation in July 2010, Postmedia has implemented a series of restructuring initiatives which have significantly reduced operating costs. During the fourth quarter of fiscal 2012, the Company implemented a number of new initiatives which are expected to yield net annualized cost savings of approximately $37 million. These savings represent the first phase of a three-year business transformation program that, in total, is targeted to reduce operating costs by 15% to 20%. Refinancing On August 16, 2012, the Company issued $250.0 million in aggregate principal amount of 8.25% Senior Secured Notes due 2017. The proceeds from the issuance were used to repay amounts then outstanding on the Term Loan Facility of $238.3 million (US$240.0 million), accrued and unpaid interest of $3.4 million, and transaction fees of $6.6 million. In conjunction with the refinancing, we settled the foreign currency interest rate swaps associated with the Term Loan Facility for cash consideration of $9.4 million. Closing of the sale of 1450 Don Mills Road, Toronto On June 26, 2012, Postmedia announced that it had entered into an agreement of sale and purchase with The Rose & Thistle Group Ltd. for the sale of the Company's headquarters at a purchase price of $24 million. The transaction closed October 12, 2012 and Postmedia will apply the net proceeds of approximately $23.2 million to redeem a portion of its 8.25% Senior Secured Notes due 2017 at par in accordance with the provisions of the Senior Secured Notes indenture. Management Commentary “We are very pleased with the progress we made in the most recent quarter. In addition to the successful launch of the next phase of our transformation program, we completed the refinancing of our term loan, sold our head office building in Toronto and expanded our content metering system to new markets,” said Paul Godfrey, President and Chief Executive Officer. “Although the revenue environment remains challenging we are confident we are taking the necessary steps to reposition the Company to compete effectively in an increasingly digital world.” Also announced today, David Emerson has decided not to seek re-election as a director at the Company's Fiscal 2012 meeting of shareholders. “We thank David, one of Postmedia's founding directors, for his tremendous contributions,” said Ron Osborne, Chairman. “His insight and experience have been greatly valued by management and fellow board members.” Transition to International Financial Reporting Standards (“IFRS”) Postmedia adopted IFRS on September 1, 2011 and accordingly, the Company's annual audited consolidated financial statements for the years ended August 31, 2012 and August 31, 2011 are the first annual consolidated financial statements prepared under IFRS. 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 August 31, 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.Operating Results for the three months ended August 31, 2012 and 2011 (In thousands of Canadian dollars)         Q4 F2012         Q4 F2011   Q4 F2012 to Q4 F2011 VarianceFavourable(Unfavourable)   Revenues Print advertising 112,157 122,283 (10,126) Print circulation 51,223 54,417 (3,194) Digital 21,937 21,200 737 Other 4,807 4,251 556 Total revenues190,124202,151(12,027)Expenses Compensation 81,367 84,745 3,378 Newsprint 11,717 12,885 1,168 Distribution 29,218 30,926 1,708 Other operating 39,649 40,062 413 Operating income before depreciation, amortization and restructuring28,17333,533(5,360) Depreciation 6,593 6,671 78 Amortization 10,881 11,227 346 Restructuring and other items 13,014 2,971 (10,043) Operating income (loss)(2,315)12,664(14,979) Interest expense 17,726 16,456 (1,270) Loss on debt repayment 9,178 - (9,178) Net financing expense related to employee benefit plans 975 440 (535) Loss on disposal of property and equipment and intangible assets 180 61 (119) (Gain) loss on derivative financial instruments 6,628 (8,059) (14,687) Foreign currency exchange (gains) losses (8,651) 4,604 13,255 Loss before income taxes(28,351)(838)(27,513) Provision for income taxes - - - Net loss from continuing operations(28,351)(838)(27,513) Net earnings from discontinued operations, net of tax of nil - 487 (487) Net loss attributable to equity holders of the Company(28,351)(351)(28,000)   Postmedia Network Canada Corp.Operating Results for the years ended August 31, 2012 and 2011 (In thousands of Canadian dollars)         F2012         F2011   F2012 to F2011 VarianceFavourable(Unfavourable)   Revenues Print advertising 514,987 573,920 (58,933) Print circulation 209,177 219,296 (10,119) Digital 89,076 87,050 2,026 Other 18,637 18,622 15 Total revenues831,877898,888(67,011)Expenses Compensation 348,133 368,516 20,383 Newsprint 52,628 57,423 4,795 Distribution 123,872 126,825 2,953 Other operating 162,908 156,922 (5,986) Operating income before depreciation, amortization and restructuring144,336189,202(44,866) Depreciation 26,157 27,015 858 Amortization 43,566 45,209 1,643 Restructuring and other items 35,355 38,011 2,656 Operating income39,25878,967(39,709) Interest expense 65,446 72,284 6,838 Loss on debt repayment 9,178 11,018 1,840 Net financing expense related to employee benefit plans 3,900 2,971 (929) Loss on disposal of property and equipment and intangible assets 258 176 (82) (Gain) loss on derivative financial instruments (8,632) 21,414 30,046 Foreign currency exchange (gains) losses 6,383 (17,959) (24,342) Acquisition costs - 1,217 1,217 Loss before income taxes(37,275)(12,154)(25,121) Provision for income taxes - - - Net loss from continuing operations(37,275)(12,154)(25,121) Net earnings from discontinued operations, net of tax of nil 14,053 2,565 11,488 Net loss attributable to equity holders of the Company(23,222)(9,589)(13,633)Postmedia Network Canada Corp.Media ContactPhyllise GelfandVice President, Communications(416) 442-2936pgelfand@postmedia.comorInvestor ContactDoug LambExecutive Vice President and Chief Financial Officer(416) 383-2325dlamb@postmedia.com