Postmedia Reports Fourth Quarter Results
October 16, 2020 (TORONTO) – Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three months and year ended August 31, 2020.
“We are now six months into a global pandemic and its effects on our people, our clients and our communities,” said Andrew MacLeod, President and Chief Executive Officer, Postmedia. “We continue to operate in an uncertain landscape with a focus on keeping our people safe, preserving liquidity, constraining costs and maximizing revenue while working with government programs aimed at supporting Canada’s economy during this unprecedented time. We have put significant focus and energy into supporting local businesses across Canada. Two programs were launched to support partners in the communities we serve. The Connect with Local Businesses initiative provides a directory linking customers with essential services and the Marketing Grant program provides new businesses an opportunity to apply for a matching advertising grant to supplement their investment.”
- Safety of Our People – We expect that most of our employees will continue to work from home into calendar 2021. At operations that require on-site work we continue to implement extensive safety measures. All health and safety measures are assessed on an ongoing basis and in accordance with the recommendations of health authorities.
- Preserving Liquidity – Cash management, including the waiver of payments related to first-lien debt and government assistance, has resulted in an unrestricted cash balance of $49.8 million as at August 31, 2020.
- ? Constraining Costs – In the quarter we realized a 15.6% reduction in operating costs1 , which includes the impact of initiatives implemented in the quarter that are expected to result in approximately $2 million of net annualized cost savings.
- Maximizing Revenue – Fourth quarter revenue was down 27.8% from the prior year and significantly impacted due to the pandemic. Our product and development teams continued to launch innovative solutions providing improvements to our overall monetization, engagement, and user experience. Circulation revenue was relatively strong, reflecting the importance of credible journalism during these unprecedented times.
- Government Support – Canada Emergency Wage Subsidy (“CEWS”) of $21.0 million recognized and $13.3 million received during the quarter.
Fourth Quarter Operating Results
The Company continued to face significant business impacts from the COVID-19 pandemic. Revenue for the quarter was $105.2 million as compared to $145.6 million in the same period in the prior year, representing a decrease of $40.4 million or 27.8%. The revenue decline was primarily due to decreases in print advertising revenue of $22.1 million or 38.5% and digital revenue of $10.7 million or 34.3% with digital advertising down 40.5%. Print circulation revenue declined $5.2 million or 10.2% versus the same period in the prior year.
Excluding the impact of the adoption of the IFRS 16 – Leases accounting policy in Fiscal 2020, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $41.3 million or 31.2% 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 operating expense decreases is the impact of a compensation expense recovery of $21.0 million related to CEWS partially offset by a decrease in the compensation recovery related to journalism tax credits of $7.5 million.
Operating income before depreciation, amortization, impairment and restructuring of $16.7 million in the quarter represents a decrease of $3.4 million relative to the same period in the prior year. The increase is due to a decrease in operating expenses, partially offset by decreases in total revenue. Included in operating expenses are the impact of the change in accounting policy related to leases and the compensation expense recoveries related to CEWS and journalism tax credits.
Net earnings in the quarter ended August 31, 2020 were $13.5 million, as compared to $7.9 million in the same period in the prior year. The change was primarily the result of the increase in operating income before depreciation, amortization, impairment and restructuring, decreases in depreciation and amortization expenses, an increase in foreign exchange gains and a gain on derivative financial instruments in Fiscal 2020 partially offset by a decrease in restructuring and other items expense which includes a curtailment gain of $9.7 in Fiscal 2019 related to the Company’s employee benefit plans.
Fiscal 2020 Operating Results
Revenue for the year ended August 31, 2020 was $508.4 million as compared to $619.6 million in the same period in the prior year, a decrease of $111.2 million or 18.0%. The revenue decline was primarily due to decreases in print advertising revenue of $68.7 million or 26.5%, decreases in print circulation revenue of $15.8 million or 7.6% and decreases in digital revenue of $17.0 million or 13.6% year to date with digital advertising revenue down 16.0%.
Excluding the impact of the adoption of the IFRS 16 – Leases accounting policy in Fiscal 2020, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $121.5 million or 21.3% for the year ended August 31, 2020, relative to 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 operating expense decrease is the impact of compensation expense recoveries of $40.3 million and $4.5 million recognized in Fiscal 2020 related to CEWS and journalism tax credits, respectively and $7.0 million recognized in Fiscal 2019 related to journalism tax credits.
Operating income before depreciation, amortization, impairment and restructuring of $67.7 million in the in the year ended August 31, 2020 represents an increase of $18.4 million or 37.4% relative to the prior year. The increase is due to a decrease in operating expenses, partially offset by decreases in total revenue. Included in operating expenses are the impact of the change in accounting policy related to leases and the compensation expense recoveries related to CEWS and journalism tax credits.
Net loss in the year ended August 31, 2020 was $16.2 million, as compared to $6.3 million in the same period in the prior year. The change was primarily the result of increases in impairment and interest expenses and gains on disposal of property and equipment and assets held-for-sale as well as a decrease in restructuring and other items expense which includes a curtailment gain of $9.7 in Fiscal 2019 related to the Company’s employee benefit plans partially offset by the increase in operating income before depreciation, amortization, impairment and restructuring, a decrease in depreciation expense, and foreign currency exchange gains in Fiscal 2020.
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. The Company is continuing to address 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 being 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. 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. The Company applied for CEWS for the period from March 15 to August 29, 2020 and during the three months and year ended August 31, 2020, recognized a recovery of compensation expense of $21.0 million and $40.3 million, respectively. As at August 31, 2020, the Company has an amount receivable related to CEWS of $13.0 million. On September 23, 2020, the Government of Canada announced they will extend CEWS to the summer of 2021. 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. On May 27, 2020 the Company implemented additional permanent layoffs impacting approximately 40 unionized employees.
Subsequent to August 31, 2020, the Company redeemed $3.3 million of Notes on October 1, 2020 and will redeem an additional $5.2 million Notes on November 5, 2020 both from the proceeds of assets sales. In addition, the Company gave notice to its first-lien noteholders of its intention to redeem $6.9 million of Notes on November 13, 2020, as required pursuant to the annual excess cash flow requirement. After these aggregate redemptions of $15.4 million the Company will have $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 Postmedia Plan members 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. Subsequent to August 31, 2020, the Company received approval from the Financial Services Regulatory Authority of Ontario (“FSRA”) to transfer the assets from the Postmedia Plans which is anticipated will be completed in November 2020. Upon completion of the transfer of assets from the Postmedia Plans, the CAAT Pension Plan will assume defined benefit obligations accrued prior to July 1, 2019 and a cash funding obligation of $10.1 million related to the transferred Postmedia Plans deficits will be payable to the CAAT Pension Plan over a term of ten years.
Business Transformation Initiatives
During the three months ended August 31, 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 $2 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.
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 125 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.riveroaksstudios.com.
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.
For more information:
Vice President, Communications
Executive Vice President and Chief Financial Officer
1 Operating expenses excluding depreciation, amortization and restructuring as adjusted for the impacts of the Canada Emergency Wage Subsidy and the adoption of IFRS 16 – Leases in Fiscal 2020.