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, 2020.


“With the effects of the global pandemic continuing to weigh on our communities and our people, our focus remains on the safety of our teams, preserving liquidity, constraining costs, maximizing revenue and pursuing government support,” said Andrew MacLeod, President and Chief Executive Officer, Postmedia.

  • Safety of Our People – Where possible, our employees are working from home and we expect that to continue into the spring. At operations where on-site work is required, we are vigilant about strict safety measures and keeping in step with the recommendations of health authorities.
  • Constraining Costs – In the quarter we realized a 21.4% 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.
  • Preserving Liquidity – Cash management, including the impact of cost savings and government assistance, has resulted in an unrestricted cash balance of $47.8 million as at November 30, 2020.
  • Maximizing Revenue – First quarter revenue was down 25.4% from the prior quarter and was significantly impacted by the pandemic. We have been working to support local business efforts and have added to our digital acquisition team to expand our reach and grow relationships with new small and medium businesses.
  • Government Support – Canada Emergency Wage Subsidy (“CEWS”) of $6.6 million recognized and $14.0 million received during the quarter.

First Quarter Operating Results

Three quarters into the COVID-19 pandemic, the Company continued to navigate through the pandemic’s significant business impacts. Revenue for the quarter was $116.9 million as compared to $156.7 million in the same period in the prior year, representing a decrease of $39.7 million or 25.4%. The revenue decline was primarily due to decreases in print advertising revenue of $20.6 million or 32.1% and digital revenue of $10.7 million or 31.1% with digital advertising revenue down 36.0%. Print circulation revenue declined $6.2 million or 12.4% versus the same period in the prior year.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $35.5 million or 26.3% for the quarter, relative to the same period in the prior year. The decrease was a result of lower compensation expense and newspaper circulation volumes as well as the implementation of various cost reduction initiatives. Included in the decrease of operating expenses is the impact of a compensation expense recovery of $6.6 million related to CEWS, partially offset by a decrease in compensation recovery related to journalism tax credits of $0.9 million.

Operating income before depreciation, amortization, impairment and restructuring of $17.2 million in the quarter represents a decrease of $4.2 million relative to the same period in the prior year. The decrease is due to the decrease in total revenue partially offset by decreases in operating expenses. Included in the operating expense decreases is the impact of the compensation expense recoveries related to CEWS and journalism tax credits.

Net earnings in the quarter ended November 30, 2020 was $52.8 million, as compared to a loss of $3.0 million in the same period in the prior year. The change was primarily the result of a non-cash settlement gain related to employee benefit plans of $63.1 million, gains on derivative financial instruments and foreign exchange in the three months ended November 30, 2020, decreases in depreciation, amortization and restructuring expenses partially offset by impairment expense of $13.5 million in the three months ended November 30, 2020, a decrease in operating income depreciation, amortization, impairment, settlement gains and restructuring and an increase in interest expense.

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, advertising revenue declines have accelerated as a result of the COVID-19 pandemic and related government measures. On April 11, 2020, the Government of Canada passed CEWS to support employers facing financial hardship as measured by certain revenue declines as a result of the COVID-19 pandemic. CEWS currently provides a reimbursement of compensation expense to June 2021 provided the applicant has met the applicable criteria, which criteria have been established up to March 13, 2021. During the three months ended November 30, 2020, the Company recognized a recovery of compensation expense of $6.6 million and in total has recognized $46.7 million related to CEWS since the program was announced. As at November 30, 2020, the Company has an amount receivable related to CEWS of $5.6 million.

Debt Repayment

During the three months ended November 30, 2020, the Company redeemed $3.3 million of first-lien debt on October 1, 2020 and an additional $5.2 million on November 5, 2020, both from the proceeds of assets sales. In addition, the Company redeemed $6.9 million of first-lien debt on November 13, 2020, as required pursuant to the annual excess cash flow requirement pursuant to the first-lien notes indenture. After these aggregate redemptions of $15.4 million, the Company has $83.8 million of first-lien debt outstanding of the original $225.0 million that was issued in October 2016.

CAAT Pension Plan

On January 29, 2019, the Company entered into an agreement with the Colleges of Applied Arts & Technology Pension Plan (the “CAAT Pension Plan”), a multi-employer defined benefit plan, to merge the Company’s defined benefit pension plans (the “Postmedia Plans”), with the CAAT Pension Plan. Effective July 1, 2019, the Company received approval from members of the Postmedia Plans and the Company became a participating employer under the CAAT Pension Plan and all members of the Postmedia Plans, as well as members of the Company’s defined contribution pension plan, began accruing benefits under the DBplus provisions of the CAAT Pension Plan. On October 8, 2020, the Company received approval from the Financial Services Regulatory Authority of Ontario to transfer the Postmedia Plans assets to the CAAT Pension Plan, which was completed in November 2020. On completion of the asset transfer, the CAAT Pension Plan assumed defined benefit obligations of the Postmedia Plans and the Company commenced additional cash funding obligations of $11.0 million related to the transferred Postmedia Plans deficits payable over the next ten years and recognized a non-cash gain on settlement of $63.1 million.

Business Transformation Initiatives

During the three months ended November 30, 2020, the Company implemented initiatives including those discussed above related to the COVID-19 pandemic as well as additional 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 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 120 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, the realization of anticipated cost savings, the completion of asset transfers related to the Company’s pension plans, the receipt of anticipated government assistance 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 continuing to address 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, 2020 and 2019. 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,

 

2020

2019

 

 

 

Revenues

 

 

Print advertising

43,532

64,143

Print circulation

44,100

50,327

Digital

24,869

35,586

Other

4,429

6,599

Total revenues

116,930

156,655

Expenses

 

 

Compensation

36,812

52,283

Newsprint

4,990

7,477

Distribution

24,686

28,906

Production

14,944

20,939

Other operating

18,320

25,672

Operating income before depreciation, amortization, impairment, settlement gain and restructuring

17,178

21,378

Depreciation

2,783

3,011

Amortization

2,555

4,248

Impairment

13,464

-

Settlement gain

(63,079)

-

Restructuring

2,935

8,569

Operating income

58,520

5,550

Interest expense

7,826

7,378

Net financing expense related to employee benefit plans

636

610

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

(6)

(3)

(Gain) loss on derivative financial instruments

(1,604)

519

Foreign currency exchange (gains) losses

(1,157)

46

Earnings (loss) before income taxes

52,825

(3,000)

Provision for income taxes

-

-

Net earnings (loss) attributable to equity holders of the Company

52,825

(3,000)

 

 

 

 

 

 

Earnings (loss) per share attributable to equity holders of the Company

 

 

Basic

$0.56

$(0.03)

Diluted

$0.54

$(0.03)

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

(In thousands of Canadian dollars)

As at
November 30,

2020

As at
August 31,

2020

 

 

 

Assets

 

 

Current Assets

 

 

Cash

47,752

49,795

Restricted cash

-

3,402

Trade and other receivables

67,496

65,548

Assets held-for-sale

18,427

28,229

Inventory

3,021

3,260

Prepaid expenses and other assets

9,228

10,338

Total current assets

145,924

160,572

Non-Current Assets

 

 

Property and equipment

83,387

90,778

Right of use assets

39,065

40,857

Derivative financial instruments and other assets

4,942

3,338

Intangible assets

37,166

41,334

Total assets

310,484

336,879

 

 

 

Liabilities and Equity

 

 

Current Liabilities

 

 

Accounts payable and accrued liabilities

51,373

48,041

Provisions

6,483

6,856

Deferred revenue

24,196

24,369

Current portion of lease obligations

8,025

9,482

Current portion of long-term debt

5,000

20,372

Total current liabilities

95,077

109,120

Non-Current Liabilities

 

 

Long-term debt

252,107

252,983

Employee benefit obligations and other liabilities

48,962

101,862

Lease obligations

36,597

37,136

Total liabilities

432,743

501,101

 

 

 

Deficiency

 

 

Capital stock

810,861

810,861

Contributed surplus

16,198

15,925

Deficit

(949,318)

(991,008)

Total deficiency

(122,259)

(164,222)

Total liabilities and deficiency

310,484

336,879

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

(In thousands of Canadian dollars)

For the three months
ended November 30,

 

2020

2019

 

 

 

Cash Generated (Utilized) by:

 

 

Operating Activities

 

 

Net earnings (loss) attributable to equity holders of the Company

52,825

(3,000)

Items not affecting cash:

 

 

Depreciation

2,783

3,011

Amortization

2,555

4,248

Impairment

13,464

-

(Gain) loss on derivative financial instruments

(1,604)

519

Non-cash interest

5,855

5,358

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

(6)

(3)

Non-cash foreign currency exchange gains

(1,124)

(51)

Share-based compensation plans expense

273

222

Net financing expense relating to employee benefit plans

636

610

Non-cash settlement gain relating to employee benefit plans

(63,079)

-

Employee benefit plan funding in excess of compensation expense

(538)

(452)

Net change in non-cash operating accounts

(3,767)

(7,714)

Cash flows from operating activities

8,273

2,748

 

 

 

Investing Activities

 

 

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

4,708

33

Purchases of property and equipment

(392)

(1,122)

Purchases of intangible assets

(15)

(196)

Cash flows from (used in) investing activities

4,301

(1,285)

 

 

 

Financing activities

 

 

Net proceeds from issuance of long-term debt

-

95,235

Repayment of long-term debt

(15,372)

(94,761)

Restricted cash

3,402

13

Debt issuance costs

-

(1,710)

Lease payments

(2,647)

(2,158)

Cash flow used in financing activities

(14,617)

(3,381)

 

 

 

Net change in cash for the period

(2,043)

(1,918)

Cash at beginning of period

49,795

15,464

Cash at end of period

47,752

13,546

 

 

 

Supplemental disclosure of operating cash flows

 

Interest paid

4,162

3,948

Income taxes paid

-

-


1 Operating expenses excluding depreciation, amortization and restructuring as adjusted for the impact of the Canada Emergency Wage Subsidy.


Contacts

Media Contact
Phyllise Gelfand
Vice President, Communications
(647) 273-9287
pgelfand@postmedia.com

Investor Contact
Brian Bidulka
Executive Vice President and Chief Financial Officer
(416) 383-2499
bbidulka@postmedia.com