Postmedia Reports First Quarter Results
January 13, 2021 (TORONTO) – 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 costs 1, 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.
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.
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.
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.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 impact of the Canada Emergency Wage Subsidy.