AP NEWS

Postmedia Reports Third Quarter Results

July 11, 2018

TORONTO--(BUSINESS WIRE)--Jul 11, 2018--Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three and nine months ended May 31, 2018.

Third Quarter Operating Results

Revenue for the quarter was $171.0 million as compared to $190.0 million in the same period in the prior year, a decrease of $19.0 million or 10.0%. The revenue decline was primarily due to decreases in print advertising revenue of $14.8 million or 15.8% and print circulation revenue of $4.5 million or 7.6%. Digital revenue increased by $2.0 million or 7.2% in the quarter with digital advertising revenue up 10% – the sixth consecutive quarter of double-digit revenue growth in this area. Excluding the impact of the publications acquired and sold in the Company’s first quarter, revenue for the quarter decreased 7.2% relative to the same period in the prior year including decreases in print advertising revenue of 13.6%, print circulation revenue of 4.4% and an increase in digital revenue of 11.3% which includes an increase in digital advertising revenue of 14.7%.

“We are encouraged to see our sixth straight quarter of double-digit revenue increases from our digital advertising initiatives yet we continue to see a rate of legacy revenue declination that outpaces our digital revenue growth,” said Paul Godfrey, Executive Chairman and Chief Executive Officer. “That reality means that we must continue to take the necessary steps to focus on areas where we can win and make the tough, yet decisive, decisions about where we need to make changes.”

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $15.9 million or 9.3% for the quarter, relative to the same period in the prior year. The decrease was as a result of various cost reduction initiatives as well as a compensation expense recovery of $2.9 million related to the Company’s Ontario Interactive Digital Media Tax Credit (“OIDMTC”) claim. Excluding the recovery related to the OIDMTC claim, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $13.0 million or 7.6% for the quarter, relative to the same period in the prior year.

Operating income before depreciation, amortization, impairment and restructuring of $15.5 million in the quarter represents a decrease of $3.1 million relative to the same period in the prior year. The decrease is due to decreases in print advertising and circulation revenues only partially offset by increased digital revenue and operating expense decreases.

Net loss in the quarter ended May 31, 2018 was $15.5 million which includes a $9.4 million non-cash impairment charge, as compared to net earnings of $13.0 million in the same period in the prior year. The change was primarily the result of an increase in impairment expense, a decrease in operating income before depreciation, amortization, impairment and restructuring as compared to the same period in the prior year and a recovery of restructuring expense of $22.8 million related to changes in the Company’s employee benefit plans in the prior year.

Year-to-Date Operating Results

Revenue for the nine months ended May 31, 2018 was $517.6 million as compared to $577.5 million in the same period in the prior year, a decrease of $59.8 million or 10.4%. The revenue decline was primarily due to decreases in print advertising revenue of $50.9 million or 17.5% and print circulation revenue of $12.9 million or 7.2%. Digital revenue increased by $8.4 million or 10.6% year to date with digital advertising revenue up 13%.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $78.1 million or 14.6% for the nine months ended May 31, 2018, relative to the same period in the prior year. The decrease was as a result of various cost reduction initiatives as well as a compensation expense recovery of $19.9 million related to the Company’s OIDMTC claim. Excluding the recovery related to the OIDMTC claim, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $58.2 million or 10.9% for the nine months ended May 31, 2018, relative to the same period in the prior year.

Operating income before depreciation, amortization, impairment and restructuring of $60.5 million in the nine months ended May 31, 2018 represents an increase of $18.2 million relative to the same period in the prior year. The increase is due to operating expense decreases partially offset by a decrease in total revenues.

Net loss for the nine months ended May 31, 2018 was $11.0 million, as compared to net earnings of $4.4 in the same period in the prior year. The change was primarily as a result of a gain on debt settlement in the nine months ended May 31, 2018 as well as decreases in impairment and restructuring expenses.

Business Transformation Initiatives

This past quarter the Company has continued to implement cost savings initiatives aimed at reducing operating costs including outsourcing production, office space rationalization and changes to printing schedules. During the three months ended May 31, 2018, the Company implemented initiatives which are expected to result in approximately $7 million of net annualized cost savings.

In June 2018 the Company began implementation of a cost saving initiative aimed at further reducing compensation expenses by approximately 10% by the end of the fiscal year through a combination of voluntary and involuntary headcount reductions.

The Company will 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 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 implementation and results of the Company’s transformation initiatives, 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. 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, 2017 and 2016. 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)

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

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

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