Press release from Marketwire
GVIC Communications Corp. Reports Third Quarter Results
Tuesday, November 12, 2013
GVIC Communications Corp. Reports Third Quarter Results19:20 EST Tuesday, November 12, 2013
VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov. 12, 2013) - GVIC Communications Corp. (TSX:GCT) ("GVIC" or the "Company") reported cash flow, earnings and revenue for the period ended September 30, 2013.
Results are reported below on an adjusted basis to include the Company's share of the results of its joint ventures.
Management bases its operating decisions and performance evaluation utilizing these results. Refer to Change in Accounting Policy on page 5 for discussion of the accounting change and results in accordance with IFRS.
(thousands of dollars)
except share and per share amounts
|EBITDA margin (1)||10.7||%||12.8||%||12.3||%||15.6||%|
|EBITDA per share (1)||$||0.027||$||0.033||$||0.099||$||0.128|
|Net income attributable to common shareholders before non-recurring items (1)(2)(3)||$||405||$||3,095||$||4,786||$||12,573|
|Net income attributable to common shareholders per share before non-recurring items (1)(2)(3)||$||0.001||$||0.010||$||0.016||$||0.042|
|Cash flow from operations (1)(2)(3)||$||6,233||$||7,697||$||24,567||$||31,690|
|Cash flow from operations per share (1)(2)(3)||$||0.021||$||0.026||$||0.082||$||0.105|
|Debt net of cash outstanding before deferred financing charges||$||147,139||$||156,094||$||147,139||$||156,094|
|Dividends paid (4)||$||1,803||$||2,704||$||3,606||$||5,408|
|Dividends paid per share (4)||$||0.006||$||0.009||$||0.012||$||0.018|
|Weighted average shares outstanding, net||300,425,031||300,425,031||300,425,031||300,425,031|
|(1)||Refer to "Non-IFRS Measures" section of the financial statements.|
|(2)||2013 excludes $2.7 million of restructuring expense, $1.6 million of transaction and transition costs, $0.2 million gain on acquisition, and $0.9 million of other expenses.|
|(3)||For non-recurring items excluded in the prior period, refer to previously reported financial statements.|
|(4)||Dividends in 2013 total $0.024 per share paid quarterly, dividends in 2012 total $0.018 per share paid semi-annually, quarterly dividends totalling $1.8 million or $0.006 per share were declared in August 2013 and paid on October 4, 2013.|
|(5)||These results are presented on an adjusted basis to include the Company's share of the results of its joint ventures, as management continues to base its operating decisions and performance evaluation utilizing adjusted results.|
Review of Operations and Value Enhancement Initiatives
While the soft economy continues to affect business conditions for parts of the Company, significant progress was made towards improved performance.
Although adjusted consolidated revenue and EBITDA were off 2.1% and 18.4% respectively for the quarter compared to last year, same store operating revenue and EBITDA were flat to last year in September, reflecting the impact of a variety of business and EBITDA enhancement initiatives that have been recently implemented.
As well, adjusted consolidated EBITDA for the quarter included a number of one-time accounting and other expense items. Excluding these items, adjusted consolidated EBITDA was 12.8% below the same quarter last year - a significant improvement compared to the first and second quarter of this year.
Value Enhancement Initiatives
The Company has undertaken a number of strategic initiatives to strengthen its financial position and operating performance, including the following:
- Sale of real estate assets. The Company has initiated plans to sell a significant portfolio of real estate properties in the near term. $4 million was realized from the sale of property in April. $6.5 million of consideration was realized from real estate sales in September. Other property dispositions are currently being negotiated. Given current capitalization and interest rates, monetizing real estate value to reduce leverage has been deemed prudent. The real estate sales have been targeted to a) cover any required deposit relating to the previously reported notice of possible re-assessment from Canada Revenue Agency (CRA) for the 2008-2011 income tax years, should a deposit become payable and b) result in a net reduction of leverage from current levels. The timing of any potential CRA re-assessment is not determinable at this time.
- The Company (excluding its joint ventures) reduced debt by $8.7 million during the quarter. The Company's adjusted debt to EBITDA ratio was 3.1x at quarter end as a result.
- Sale of non-core assets. Subsequent to quarter end, the Company sold two money losing community newspapers and acquired several more profitable community media assets that provide a better strategic fit with the
- Cost reduction initiatives. Given the softness currently being experienced in the Company's community media operations, a variety of significant cost reduction measures have and are being implemented to reduce overall operating costs. The initiatives are targeted to reduce costs by more than $7 million on an annualized basis. Some of these savings were realized in the third quarter.
- Evolve, Enrich and Extend strategy. Management is currently reviewing the spectrum of verticals in which it operates with a view to focusing resources and efforts on those verticals and opportunities deemed to have the greatest growth potential that can be realized through GVIC's Evolve, Enrich and Extend strategy. This strategy focuses on the provision of richer content, data and information, related analytics and business and market intelligence, and the achievement of greater customer utility and decision dependence. The Company is achieving significant progress in the implementation of this strategy in its business information operations.
Despite prevailing economic conditions, many of the Company's business information operations continue to grow and provide attractive opportunities in both existing and new verticals through multi-platform offerings, including rich information products and solutions.
Business information operations now represent more than half of GVIC's EBITDA. 45% of the business information EBITDA is derived from rich information digital data products designed for scalable growth and high levels of profitability. Many of these product lines offer resiliency in challenging economic times as they provide critical insight and decision support to GVIC's customers.
GVIC's business information operations enjoyed growth in the energy, agricultural, environmental risk, environmental compliance networks, medical, financial and a variety of other sectors as a result of targeted initiatives designed to align with growth opportunities within those sectors. GVIC's business information portfolio contains many brands that have decades of service in their respective sectors. The intrinsic equity associated with these brands is a key competitive advantage as the Company pursues its Evolve, Enrich and Extend strategy with its various products and services.
Consistent with this strategy, management is focused on initiatives designed to offer customers increasingly richer value propositions. These include multi-platform solutions - with a key focus on mobile offerings - designed to integrate more seamlessly with customer decision-making processes, thus ensuring heightened levels of decision dependency on specific information tools. Overall, this strategy is intended to produce products and services that provide growth opportunities and are also more resilient in times of economic stress.
Key efforts are under way to distinguish different types of digital content, advertising and subscriptions based on research designed to highlight individual industry sector needs. Premium subscription and related products are being enhanced and developed with a particular focus on essential content, data, search, interpretation, contextualization and analytics. A consistent focus on various ways of enriching content results in improved rates for advertising positioned alongside rich information. The Canadian Oilfield Services and Supply Database ("COSSD"), for example, is evolving strategically away from its roots as a phone book style directory and integrating its services more firmly in the oilfield procurement processes through digital platforms and enhanced information and search effectiveness. This transactional utility creates enriched advertising opportunities by juxtaposing clients' marketing messages at key points within the database. The outcome of this transition has been continued growth in total revenues for the COSSD.
Based on momentum that accelerated in 2012 and into the first six months of 2013, a variety of initiatives highlighted how sharper focus on sector and customer needs is facilitating successful product development. These developments are intended to play important mid-term and long-term roles in the evolution and extension of GVIC's business franchises. They include:
- Environmental Risk Information Service ("ERIS") expanded its business into the United States. The ERIS platform will now operate as a centralized hub for North America, conforming to both Canadian and United States standards.
- WeatherFarm was re-engineered and re-launched to integrate new tools and data sets that augment the meteorological information and analytics of the Company's new Weather INnovations Consulting Ltd. business, through which real-time weather data and intelligence is supplied to Canadian farmers and agri- business companies.
- Subsequent to quarter end the Company will be adding the BC and Alberta Export Awards to its growing stable of events and conferences. Both events solidify important relationships with the Canadian Manufacturers and Exporters association, as well as respective provincial governments.
- FarmMedia (the new DBA for GVIC's agricultural group) contracted with the Alberta Wheat Commission to provide syndicated market information to commission members through its website.
- Canada's Outdoor Farm Show ("COFS") achieved record results with its 20th Anniversary exposition. Nearly 43,000 paying delegates attended the show, which included more than 750 exhibitors. COFS attracts both global delegates and agricultural technology (seed, crop protection and equipment technology) exhibitors and strengthens GVIC's customer relationships and revenue opportunities through integrated marketing solutions along the agricultural value chain.
Digital revenues now represent more than a quarter of GVIC's business information revenues and are growing steadily. Significant focus and related investment will continue to be made to enhance GVIC's digital business information verticals, through both organic development and new business acquisitions. These acquisitions will be targeted to expand the markets that GVIC covers, extend the breadth of information products and marketing solutions provided, and to enrich GVIC's digital media staff, technology and other relevant resources - all focused on consistently enhancing customer decision dependence on the Company's products.
Overall, the business information operations and various markets offer attractive opportunities for growth with high levels of profitability - particularly when aligned with GVIC's leading position in key sectors focused on the natural resources economy. An integrated framework which permits the Company's management teams in various verticals to remain entrepreneurial and market-focused while benefiting from product, technology and sales collaboration will enhance the Company's ability to service its key customers with more integrated solutions.
GVIC's community media operations offer broad coverage across Western Canada in local markets and continue to offer a strong value proposition through local information and marketing channel utility.
The soft economic conditions that adversely affected advertising revenues in the first and second quarters continued in the third quarter. This impact is particularly true of community operations in urban markets, such as the Lower Mainland of British Columbia, where economic conditions are soft and both print and digital competition is stronger. The Company's smaller rural community media markets - largely spread across the Prairies - have been less affected by digital competition, although digital shifts have been experienced in some national advertising categories and others. The Prairie markets have also been affected by economic conditions, particularly in key economies such as energy and agriculture (e.g. while agriculture crop volumes have held up commodity prices have fallen).
As a result of softer print revenues, management has implemented significant cost reduction measures, with a focus where possible on initiatives that can maintain or improve productivity and capacity utilization while lowering costs. These initiatives include repatriation of printing of certain publications to the Company's printing operations, outsourcing certain functions resulting in improved product and advertising service at lower production costs, and the sale of money losing assets.
Balanced against cost control initiatives, operating expense investments are being made to improve the digital community media products in order to exploit new revenue opportunities, particularly in the larger markets, with a specific focus on targeted content delivery and advertising effectiveness. In the third quarter, for example, GVIC entered into a new social commerce partnership with the purchase of VitaminDaily, Canada's premiere online magazine for women readers. VitaminDaily has six editions across Canada in major metropolitan centres and delivers more than 500,000 e-newsletters a week.
As a result of these efforts GVIC's community media digital revenue continues to grow and is now contributing a net profit contribution to GVIC.
While economic and market challenges have affected the community media operations, management believes that these businesses will continue to generate solid cash flow given the nature of the markets in which GVIC operates - particularly within the more robust micro-economies of Western Canada. The Company believes that shareholder value will be maximized by using the cash flow from these community media operations to pay down debt, invest in opportunities and acquisitions consistent with the Company's Evolve, Enrich and Extend growth strategy, and return value to shareholders through dividends.
As stated, for the three months ended September 30, 2013, adjusted consolidated revenue declined 2.1% for the quarter and adjusted consolidated EBITDA declined $1.9 million or 18.4% to $8.2 million for the quarter compared to $10.1 million last year. Excluding one-time accounting and other expense items, adjusted consolidated EBITDA was 12.8% below the same quarter last year - a significant improvement compared to the first and second quarter this year.
Encouragingly, results improved towards the end of the quarter, with same store operating revenue and EBITDA being flat to last year in September, reflecting the impact of a variety of business and EBITDA enhancement initiatives that have been recently implemented.
Adjusted cash flow from operations (before changes in non-cash operating accounts and non-recurring items) decreased 19.0% to $6.2 million. Adjusted net income attributable to common shareholders before non-recurring items) was $0.4 million compared to $3.1 million for the same period in the prior year.
Adjusted EBITDA per share decreased 18.4% to $0.027 from $0.033 for the period compared to the same period in the prior year and net income attributable to common shareholders before non-recurring items per share decreased to $0.001 from $0.010 for the same period in the prior year. Adjusted cash flow from operations (before changes in non-cash operating accounts and non-recurring items) per share decreased to $0.021 from $0.026 for the same period in the prior year.
One-time accounting and other expense items. GVIC's business information operations have been impacted in 2013 by a non-cash change in accounting policy with respect to revenue recognition for certain digital directory products, which has resulted in a $1.1 million reduction in accounting revenues and EBITDA for the nine months ending September 30, 2013. These revenues and corresponding EBITDA will increase by $1.1 million over the same period in 2014 assuming volumes remain the same. Other one-time accounting changes resulted in expenses being higher by $0.5 million for the nine months ending September 30, 2013. In addition, pension costs have increased by $0.7 million for the nine months ending September 30, 2013 due to lower interest rates and their impact on pension costs calculations. Collectively these factors have resulted in $2.3 million of increased costs year-to-date.
The Company has also made an operating cost investment of $1.6 million year to date in its agricultural digital and data information businesses, the U.S. launch of its ERIS environmental risk information business, and its REW.ca real estate information business. These operating investments have been deemed essential and prudent to facilitate the evolution of the Company's information products and are expected to result in revenue growth, which growth has already begun to be realized from these investments.
GVIC's consolidated EBITDA margin decreased to 10.7% for the three months ended September 30, 2013 from 12.8% for same period last year as a result of the reasons described. As stated, management is seeking to improve these margins and profit performance through improved print and digital sales effectiveness, cost reduction measures and other initiatives.
More than $7 million of cost reductions measures have and are being implemented across a variety of operations to improve profitability. These measures have been designed to be consistent with management's strategy of maintaining strong product and editorial quality while reducing operating costs where possible through initiatives that do not impact quality, sales capacity or market and competitive positions. Management is being careful to maintain appropriate levels of resources in staff and technology as well as business development in order to facilitate long-term revenue growth.
Increased operating infrastructure investment continues to be made in digital media management, staff, information technology and related resources, as well as other content and quality related areas. GVIC's digital revenue continues to grow in both community media and business information and has both allowed this investment to be made and has been in part a result of the digital investments already made. These investments were made consistent with GVIC's complementary media platform and product strategy and business information strategies.
As indicated, the business information strategies are focused on increasing the value provided to customers through richer content, data and analytic value and heightening customer decision dependence of GVIC's products and services.
This dependence moves GVIC's products and services further up the value ladder, with the higher revenue, profitability and recurring cash flow that this value proposition provides.
In particular, the Company intends to increase capital allocated to business information acquisitions and organic growth opportunities and use the cash flow generated from community media and business information operations to fund this investment.
On an adjusted basis to include the Company's share of its joint ventures, GVIC's consolidated debt net of cash outstanding before deferred financing charges and other expenses was 3.1x trailing 12 months EBITDA as at September 30, 2013.
The Company (excluding its joint ventures) reduced debt by $8.7 million during the quarter, of which $6.5 million was generated from the sale of real estate assets. GVIC's consolidated debt net of cash outstanding before deferred financing charges was $125.3 million as at September 30, 2013.
GVIC made $0.8 million of investment capital expenditures during the quarter.
Declaration of Dividend
The Board of Directors declared a quarterly dividend of $0.006 per share on November 12, 2013 to shareholders of record on December 13, 2013 and payable on January 3, 2014. The dividend is consistent with the Company's dividend policy of paying $0.024 per share per annum payable quarterly.
Change in Accounting Policy
As a result of a change in IFRS accounting policies effective January 1, 2013, the Company is now required to account for its joint venture operations under the equity method. Previously, the Company's joint venture operations were accounted for using proportionate consolidation. As a result of the change in accounting, the Company no longer includes the revenues, expenses, assets and liabilities of its share of these operations in the Company's results. The Company now carries its interest as a net investment on its balance sheet and includes the net results from these operations in its statement of operations.
Despite this accounting change, management believes that including its share of revenues and expenses in the Company's results (consistent with its prior accounting treatment) provides an important basis for assessing the overall operations of the Company. The table below adjusts the Company's reported results under IFRS to include the revenues and expenses of its joint venture operations, consistent with its historical presentation. Management continues to base its operating decisions and performance evaluation on the adjusted results.
(thousands of dollars)
except share and per share amounts
|Three months ended
September 30, 2013 (4)
|Three months ended
September 30, 2012 (4)
|Per IFRS||Adjustment (4)||Adjusted||Per IFRS||Adjustment (4)||Adjusted|
|EBITDA margin (1)||8.4||%||10.7||%||10.6||%||12.8||%|
|EBITDA per share (1)||$||0.019||$||0.027||$||0.025||$||0.033|
|Net income attributable to common shareholders|
|before non-recurring items (1)(2)(3)||$||706||$||(301||)||$||405||$||3,170||$||(75||)||$||3,095|
|Net income attributable to common shareholders per share|
|before non-recurring items (1)(2)(3)||$||0.002||$||0.001||$||0.011||$||0.010|
|Cash flow from operations (1)(2)(3)||$||4,134||$||2,099||$||6,233||$||5,625||$||2,072||$||7,697|
|Cash flow from operations per share (1)(2)(3)||$||0.014||$||0.021||$||0.019||$||0.026|
|Debt net of cash outstanding before deferred financing charges||$||125,268||$||21,871||$||147,139||$||144,857||$||11,237||$||156,094|
|Weighted average shares outstanding, net||300,425,031||300,425,031||300,425,031||300,425,031|
|(1)||Refer to "Non-IFRS Measures" section for calculation of non-IFRS measures used in this table.|
|(2)||2013 excludes $1.8 million of restructuring expense, $0.7 million of transaction and transition costs, $0.2 million gain on acquistion, and $0.4 million of other expenses.|
|(3)||For non-recurring items excluded in the prior period, refer to previously reported financial statements.|
|(4)||Adjustment to include the Company's share of revenues, expenses and cash flows from its joint venture operations consistent with the Company's treatment on a historical basis and prior to implementing the new accounting standards.|
Under IFRS, revenues for the three months ended September 30, 2013 decreased 4.1% to $68.3 million from $71.3 million for the year prior. Cash flow from operations (before changes in non-cash operating accounts and non-recurring items) decreased 26.5% to $4.1 million and earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 24.0% to $5.8 million compared to the year prior. Net income attributable to common shareholders (before non-recurring items) decreased by $2.5 million to $0.7 million.
Cash flow from operations (before changes in non-cash operating accounts and non-recurring items) per share for the three months ended September 30, 2013 decreased to $0.014 from $0.019 for the same period prior year. EBITDA per share decreased to $0.019 from $0.025 and net income attributable to common shareholders (before non-recurring items) per share decreased to $0.002 from $0.011.
The Company will continue to focus on the growth of its business information operations through its Evolve, Enrich and Extend strategy, which focuses on the provision of richer content, data and information, related analytics and business & market intelligence, and the achievement of greater customer utility and decision dependence. While economic conditions have impacted some community media operations and business information verticals, and digital competition is stronger in the larger urban community media markets, management expects that long-term growth will continue in GVIC's business information operations and community media digital operations, as well as a variety of community media markets where local market conditions are stronger.
While media maturation factors are having an impact as described, it is important to recognize that the softer economy is playing a significant role in dampening revenues, and a strengthening of the economy should result in improved revenues at the margin. In this regard, management will continue to closely monitor economic conditions in various markets and verticals to ensure appropriate decisions are made that maintain long-term viability.
As indicated, management has undertaken a number of Value Enhancement Initiatives to strengthen the Company's financial position and operating performance in the near term, including a) sale of real estate assets to reduce leverage and cover a potential tax re-assessment deposit, b) sale of non-core assets including the disposition of several money losing community newspapers, c) significant cost reduction measures targeted to reduce costs by more than $7 million, and d) focusing operating and financial resources on those verticals and opportunities deemed to have the greatest growth potential through the Evolve, Enrich and Extend strategy. The profitability enhancement and asset sale initiatives outlined are intended to significantly improve GVIC's financial position and business strength as indicated and place the Company in a better position with which to take advantage of growth opportunities.
Management will focus in the short-term on a balance of paying down debt, reducing costs and improving profitability, enhancing existing operations, targeting select acquisition opportunities and returning value to shareholders through growth in cash flow per share and payment of dividends.
Once leverage is reduced to moderate levels, management will seek an ongoing balance of maintaining debt at those levels and delivering growth through both operations and acquisitions.
Shares in GVIC are traded on the Toronto Stock Exchange under the symbol GCT.
About the Company: GVIC Communications Corp. is an information communications company focused on the provision of primary and essential information and related services through print, electronic and online media. GVIC is pursuing this strategy through its core businesses: the local newspaper, trade information and business and professional information markets.
To supplement the consolidated financial statements presented in accordance with International Financial Reporting Standards (IFRS), GVIC uses certain non-IFRS measures that may be different from the performance measures used by other companies. These non-IFRS measures include cash flow from operations (before changes in non-cash operating accounts and non-recurring items), net income attributable to common shareholders before non-recurring items and earnings before interest, taxes, depreciation and amortization (EBITDA), which are not alternatives to IFRS financial measures. Management focuses on operating cash flow per share as the primary measure of operating profitability, free cash flow and value. EBITDA per share is also an important measure as the Company has low ongoing capital expenditures and depreciation and amortization largely relates to acquisition goodwill and copyrights and does not represent a corresponding sustaining capital expense. These non-IFRS measures do not have any standardized meanings prescribed by IFRS and accordingly they are unlikely to be comparable to similar measures presented by other issuers.
Forward Looking Statements
This news release contains forward-looking statements that relate to, among other things, the Company's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates. These forward-looking statements include, among other things, statements relating to the Company's expectations regarding revenues, expenses, cash flows and future profitability and the effect of GVIC's strategic initiatives, including its expectations to strengthen its financial position, business and operating performance, to grow its business information operations, to implement cost reduction measures, to sell real estate properties and utilize proceeds of such sales to cover required CRA re-assessment deposits and reduce leverage, to sell other non-core and money-losing assets, to produce products and services that provide growth opportunities, to organic development and new business acquisitions, to improve EBITDA margins and profitability, to grow cash flow per share, to pay dividends and to reduce leverage and debt levels. These forward looking statements are based on certain assumptions, including continued economic growth and recovery and the realization of cost savings in a timely manner and in the expected amounts, and are subject to risks, uncertainties and other factors which may cause results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, and undue reliance should not be placed on such statements.
Important factors that could cause actual results to differ materially from these expectations include failure to implement or achieve the intended results from GVIC's strategic initiatives, the failure to implement or realize cost savings in a timely manner o r in the expected amounts, the failure to negotiate or complete the sale of real estate and other non-core assets, the failure to identify, negotiate and complete the acquisition of new businesses, the failure to develop new products, and the other risk factors listed in the Company's Annual Information Form under the heading "Risk Factors" and in the Company's MD&A under the heading "Business Environment and Risks", many of which are out of the Company's control. These other risk factors include, but are not limited to, the ability of the Company to sell advertising and subscriptions related to its publications, foreign exchange rate fluctuations, the seasonal and cyclical nature of the agricultural industry, discontinuation of the Department of Canadian Heritage's Canada Periodical Fund, general market conditions in both Canada and the United States, changes in the prices of purchased supplies including newsprint, the effects of competition in the Company's markets, dependence on key personnel, integration of newly acquired businesses, technological changes, tax risk and financing and debt service risk.
The forward-looking statements made in this news release relate only to events or information as of the date on which the statements are made. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward- looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
FOR FURTHER INFORMATION PLEASE CONTACT:
GVIC Communications Corp.
Mr. Orest Smysnuik
Chief Financial Officer