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TORONTO–(BUSINESS WIRE)–Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three and six months ended February 29, 2020.

“The current global pandemic is affecting all businesses and since the close of our second quarter Postmedia has been focused on keeping employees safe, delivering critical information to Canadians and putting our company in the best possible position to emerge from the current crisis and move ahead on our proven strategy,” said Andrew MacLeod, President and Chief Executive Officer, Postmedia. “The economic disruptions emanating from the pandemic challenge our ability to foresee the long term impact on our business but we are committed to preserving liquidity, constraining costs and maximizing revenues.”

Highlights from the Quarter

  • Continued digital growth – last twelve months digital advertising growth rate of 10.0%.
  • Business Transformation – In the quarter we realized a 7.3% reduction in operating costs1, which includes the impact of initiatives implemented in the quarter that are expected to result in approximately $9 million of net annualized cost savings.
  • Operating income before depreciation, amortization, impairment and restructuring was $5.4 million in the quarter, representing an increase of $0.8 million.

Second Quarter Operating Results

Revenue for the quarter was $134.2 million as compared to $145.7 million in the same period in the prior year, representing a decrease of $11.5 million or 7.9%. The revenue decline was primarily due to decreases in print advertising revenue of $9.9 million or 16.5% and print circulation revenue of $2.0 million or 4.0% partially offset by a digital revenue increase of $1.5 million or 5.4%.

Excluding the impact of the adoption of IFRS 16 – Leases accounting policy in Fiscal 2020, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $10.3 million or 7.3% for the quarter, relative to the same period in the prior year. The decrease was a result of lower newspaper circulation volumes as well as the implementation of various cost reduction initiatives and the impact of journalism tax credits. Included in the operating expense decrease is the impact of a compensation expense recovery of $1.3 million related to journalism tax credits.

Operating income before depreciation, amortization, impairment and restructuring of $5.4 million in the quarter represents an increase of $0.8 million relative to the same period in the prior year. The increase is due to decreases in operating expenses along with an increase in digital revenue, partially offset by decreases in print advertising and circulation revenues. Included in operating expense decrease is the impact of the change in accounting policy related to leases and the compensation expense recovery related to the journalism tax credits.

Net loss in the quarter ended February 29, 2020 was $12.8 million, as compared to $5.1 million in the same period in the prior year. The change was primarily the result of a gain on disposal of property and equipment and assets held-for-sale in Fiscal 2019, foreign currency exchange losses in Fiscal 2020, and an increase in interest expense, partially offset by the increase in operating income before depreciation, amortization, impairment and restructuring and a decrease in losses on derivative financial instruments.

Year-to-Date Operating Results

Revenue for the six months ended February 29, 2020 was $290.8 million as compared to $317.0 million in the same period in the prior year, a decrease of $26.2 million or 8.2%. The revenue decline was primarily due to decreases in print advertising revenue of $22.9 million or 16.7% and decreases in print circulation revenue of $5.2 million or 5.0%. Digital revenue increased by $4.4 million or 7.1% year to date with digital advertising revenue up 8.5%.

Excluding the impact of the adoption of IFRS 16 – Leases accounting policy in Fiscal 2020, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $22.4 million or 7.7% for the six months ended February 29, 2020, relative to the same period in the prior year. The decrease was as a result of lower newspaper circulation volumes as well as the implementation of various cost reduction initiatives and the impact of journalism tax credits. Included in the operating expense decrease is the impact of a compensation expense recovery of $3.7 million related to journalism tax credits.

Operating income before depreciation, amortization, impairment and restructuring of $26.8 million in the quarter represents an increase of $0.4 million or 1.7% relative to the same period in the prior year. The increase is due to decreases in operating expenses along with an increase in digital revenue, partially offset by decreases in print advertising and circulation revenues. Included in operating expense decreases is the impact of the change in accounting policy related to leases and the compensation expense recovery of related to the journalism tax credits.

Net loss in the six months ended February 29, 2020 was $15.8 million, as compared to $6.5 million in the same period in the prior year. The change was primarily the result of a gain on disposal of property and equipment and assets held-for-sale in Fiscal 2019, increases in foreign currency exchange losses, interest expense and financing expense relating to employee benefit plans, partially offset by decreases in operating income before depreciation, amortization, impairment and restructuring and losses in derivative financial instruments.

COVID-19 Update

The COVID-19 pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus including travel bans, self-imposed quarantine periods and social distancing that have caused disruption to businesses resulting in an economic slowdown. The Company is generally exempt from mandates requiring closures of non-essential businesses and therefore has been able to continue operations however, subsequent to February 29, 2020, advertising revenues have declined as a result of the COVID-19 pandemic and related government measures. The Company is in the process of addressing the current challenges related to the COVID-19 pandemic and on April 6, 2020 received a waiver of certain terms related to its 8.25% first lien notes, maturing July 2023 (the “Notes”) which provided for the cash interest payment of $3.9 million due on April 30, 2020 to be satisfied through the issuance of additional Notes and the waiver in full of the Company’s obligation to make a mandatory excess cash flow redemption related to the six months ended February 29, 2020. In addition, the Company has been monitoring assistance being offered by the Government of Canada including the Canada Emergency Wage Subsidy (“CEWS”) which was passed on April 11, 2020 to support employers facing financial hardship as measured by certain revenue declines as a result of the COVID-19 pandemic. CEWS provides a reimbursement of compensation expense for the 12 week period from March 15 to June 6, 2020 of 75% of the amount of remuneration paid up to a maximum benefit of $847 per week, per employee. The Company has applied for CEWS for the period from March 15 to April 11, 2020 in the amount of $7.3 million. Additionally, the Company has qualified for CEWS for the periods from April 12 to June 6, 2020 and anticipates the additional amount for such period to be approximately $13 million to $15 million. On April 28, 2020, the Company implemented additional cost saving measures including temporary layoffs affecting approximately 50 employees, the closure of 15 community publications in Manitoba and Ontario resulting in approximately 30 permanent layoffs and temporary salary reductions from 5% to 30% for a range of employees with salaries in excess of $60,000, which reductions will be re-evaluated in three months’ time.

Business Transformation Initiatives

During the three months ended February 29, 2020, the Company implemented initiatives including compensation expense reductions, real estate rationalization, production efficiencies and other transformation programs, which are expected to result in approximately $9 million of net annualized cost savings.

The Company intends to continue to identify and undertake ongoing cost reduction initiatives in an effort to address revenue declination in the legacy print 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 140 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 impact of the COVID-19 pandemic on the Company’s business, the implementation and results of the Company’s transformation initiatives, continued benefits of historical results into future periods, and 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.

In addition, we are subject to the risk and uncertainties related to the COVID-19 pandemic. The pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus including travel bans, self-imposed quarantine periods and social distancing that have caused disruption to businesses resulting in an economic slowdown. We are generally exempt from mandates requiring closures of non-essential businesses and therefore have been able to continue operations however, advertising revenues have declined as a result of COVID-19 pandemic and related government measures. The outbreak of contagious illness such as this can impact our operations in a number of ways including quarantined employees, travel restrictions, temporary closure of our facilities, a decrease in demand for advertising, as well as interruptions to our supply chain, including temporary closure of supplier facilities. Given the high level of uncertainty surrounding the duration of the COVID-19 pandemic it is difficult to reliably estimate its potential impact on the financial condition and results of our business. We are in the process of addressing the current challenges related to the COVID-19 pandemic and monitoring these challenges as they evolve so as to minimize this risk however it could have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flow. 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, 2019 and 2018. 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 29, 2020

February 28, 2019

February 29,

2020

February 28,

2019

 

 

 

 

 

Revenues

 

 

 

 

Print advertising

50,172

60,096

114,315

137,187

Print circulation

48,670

50,705

98,997

104,156

Digital

29,701

28,185

65,287

60,932

Other

5,624

6,713

12,223

14,697

Total revenues

134,167

145,699

290,822

316,972

Expenses

 

 

 

 

Compensation

51,145

57,008

103,428

115,332

Newsprint

6,661

8,862

14,138

18,622

Distribution

27,334

29,432

56,240

60,875

Production

17,920

18,433

38,859

39,354

Other operating

25,671

27,292

51,343

56,411

Operating income before depreciation, amortization,

 

 

 

 

impairment and restructuring

5,436

4,672

26,814

26,378

Depreciation

2,926

4,288

5,937

9,287

Amortization

4,045

3,329

8,293

7,521

Impairment

6,600

6,600

Restructuring and other items

1,136

1,095

9,705

3,773

Operating income (loss)

(2,671)

(10,640)

2,879

(803)

Interest expense

7,445

7,034

14,823

14,219

Net financing expense related to employee benefit plans

609

540

1,219

1,081

Gain on disposal of property and equipment and assets held-for-sale

(13)

(11,671)

(16)

(11,445)

Loss on derivative financial instruments

398

869

917

1,426

Foreign currency exchange (gains) losses

1,710

(1,542)

1,756

1,205

Loss before income taxes

(12,820)

(5,870)

(15,820)

(7,289)

Provision for income taxes

Net loss from continuing operations

(12,820)

(5,870)

(15,820)

(7,289)

Net earnings from discontinued operations, net of tax of nil

791

791

Net loss attributable to equity holders of the Company

(12,820)

(5,079)

(15,820)

(6,498)

 

 

 

 

 

 

 

 

 

 

Loss per share from continuing operations

 

 

 

 

Basic

$(0.14)

$(0.06)

$(0.17)

$(0.08)

Diluted

$(0.14)

$(0.06)

$(0.17)

$(0.08)

 

 

 

 

 

Earnings per share attributable from discontinued operations

 

 

 

 

Basic

$0.01

$0.01

Diluted

$0.01

$0.01

 

 

 

 

 

Loss per share attributable to equity holders of the Company

 

 

 

 

Basic

$(0.14)

$(0.05)

$(0.17)

$(0.07)

Diluted

$(0.14)

$(0.05)

$(0.17)

$(0.07)

Postmedia Network Canada Corp.

Consolidated Statements of Financial Position

(UNAUDITED)

(In thousands of Canadian dollars)

As at

February 29,

2020

As at

August 31,

2019

 

 

 

Assets

 

 

Current Assets

 

 

Cash

15,467

15,464

Restricted cash

13

Trade and other receivables

74,592

72,228

Assets held-for-sale

29,029

24,475

Inventory

3,409

3,554

Prepaid expenses and other assets

10,900

10,269

Total current assets

133,397

126,003

Non-Current Assets

 

 

Property and equipment

98,879

109,860

Right of use assets

45,053

Derivative financial instruments and other assets

2,799

2,829

Intangible assets

56,025

60,367

Total assets

336,153

299,059

 

 

 

Liabilities and Equity

 

 

Current Liabilities

 

 

Accounts payable and accrued liabilities

49,178

54,122

Provisions

9,581

5,893

Deferred revenue

25,161

25,907

Current portion of lease obligations

8,522

Current portion of long-term debt

5,000

5,000

Total current liabilities

97,442

90,922

Non-Current Liabilities

 

 

Long-term debt

259,716

250,011

Employee benefit obligations and other liabilities

106,838

94,537

Lease obligations

40,815

Total liabilities

504,811

435,470

 

 

 

Deficiency

 

 

Capital stock

810,861

810,861

Contributed surplus

15,141

14,770

Deficit

(994,660)

(962,042)

Total deficiency

(168,658)

(136,411)

Total liabilities and deficiency

336,153

299,059

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 29,

2020

February 28,

2019

February 29,

2020

February 28,

2019

 

 

 

 

 

Cash Generated (Utilized) by:

 

 

 

 

Operating Activities

 

 

 

 

Net loss attributable to equity holders of the Company

(12,820)

(5,079)

(15,820)

(6,498)

Items not affecting cash:

 

 

 

 

Depreciation

2,926

4,288

5,937

9,287

Amortization

4,045

3,329

8,293

7,521

Impairment

6,600

6,600

Loss on derivative financial instruments

398

869

917

1,426

Non-cash interest

5,437

4,580

10,795

9,120

Gain on disposal of property and equipment and assets held-for-sale

(13)

(11,671)

(16)

(11,445)

Non-cash foreign currency exchange (gains) losses

1,838

(1,525)

1,787

1,236

Gain on sale of discontinued operations

(791)

(791)

Share-based compensation plans

149

281

371

708

Net financing expense relating to employee benefit plans

609

540

1,219

1,081

Non-cash compensation expense of employee benefit plans

1,204

421

Employee benefit plan funding in excess of compensation expense

(663)

(1,115)

Net change in non-cash operating accounts

(1,874)

4,960

(5,840)

(16,281)

Cash flows from operating activities

3,780

7,585

6,528

2,385

 

 

 

 

 

Investing Activities

 

 

 

 

Net proceeds from the sale of property and equipment and assets held-for-sale

63

20,344

96

20,735

Purchases of property and equipment

(794)

(1,279)

(1,916)

(1,445)

Purchases of intangible assets

(104)

(22)

(300)

(191)

Cash flows from (used in) investing activities

(835)

19,043

(2,120)

19,099

 

 

 

 

 

Financing activities

 

 

 

 

Net proceeds from issuance of long-term debt

95,235

Repayment of long-term debt

(20,355)

(94,761)

(29,073)

Restricted cash

391

13

(2)

Debt issuance costs

(1,710)

Issuance of shares

25

25

Lease payments

(1,024)

(3,182)

Cash flow used in financing activities

(1,024)

(19,939)

(4,405)

(29,050)

 

 

 

 

 

Net change in cash for the period

1,921

6,689

3

(7,566)

Cash at beginning of period

13,546

11,782

15,464

26,037

Cash at end of period

15,467

18,471

15,467

18,471

 

 

 

 

 

 

Supplemental disclosure of operating cash flows

 

Interest paid

17

380

3,965

5,890

Income taxes paid

 

1 Operating expenses excluding depreciation, amortization and restructuring as adjusted for the impact of the adoption of IFRS 16 – Leases in Fiscal 2020.

Contacts

Media Contact
Phyllise Gelfand

Vice President, Communications

(647) 273-9287

[email protected]

Investor Contact
Brian Bidulka

Executive Vice President and Chief Financial Officer

(416) 383-2325

[email protected]

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