Postmedia Network trims losses to $4.2M and increases revenue thanks to Sun Media acquisition
Canadian newspaper publisher, though, reports that print advertising revenue fell 17.6% when Sun papers are taken out of the report
The Q1 earnings season is not quite upon us, that will occur in the next two weeks, with Apple reporting on the 26th, for instance. But Canadian newspaper publishing Postmedia reported its Q1 2016 earnings today, its quarter having ended on November 30.
The report showed that the publisher recorded a loss of $4.2M, less than the $10.3M loss reported a year ago.
The reasons for this good news is a bit complicated. Revenue was sharply up – $251.1 million compared to $169.5 million in the prior year – but this was due to Postmedia acquiring Sun Media’s English-language operations in October of 2014. Taking this out of the results, revenue actually fell over 13 percent in quarter.
This is bad news, of course. But looking back more than a year, one can see that losses are, in fact, lower. This is the good news. But in order to get to breakeven more costs will need to be cut, or else more revenue earned. One can only guess which path they will take as in the release below they mention a further “$30 million in annualized cost savings.”
Last earnings report, Postmedia reported a loss for all of 2015 of $263.4 million, though a huge chunk of that was the result of a $153.0 million non-cash impairment charge tied to the acquisition of the Sun Media newspapers (which includes papers in Calgary, Edmonton, Toronto, Ottawa and Winnipeg). But the charge, while good for tax purposes, is an admission that the value of a property is now less than originally stated.
In that previous report the publisher also said it would be ending its four-platform strategy, which meant the shuttering of its tablet editions. I’m sure the reason for this is simply that they did not sell. But the real reason is Postmedia is not very good at apps. Take the National Post’s iOS app. Readers in the Canadian App Store have been screaming that the app is crashing or won’t refresh. There are over 100 1-star reviews versus a few positive ones – someone is asleep at the wheel (the complaints go back to November).
Here is Postmedia’s earnings report for Q1 2016:
TORONTO, Ont. – January 13, 2016 — Postmedia Network Canada Corp.today released financial information for the three months ended November 30, 2015. The results for the three months ended November 30, 2015 include the results of the English language newspapers and specialty publications, as well as digital properties acquired from Quebecor Media Inc. on April 13, 2015.
First Quarter Operating Results
Net loss in the quarter ended November 30, 2015 was $4.2 million, as compared to $10.3 million in the same period in the prior year. The decrease in net loss was primarily the result of an increase in operating income and a decrease in non-cash foreign currency exchange losses related to the carrying value of the Company’s US dollar denominated debt, partially offset by decreases in non-cash gains on derivative financial instruments and an increase in interest expense.
Operating income in the quarter was $19.4 million, as compared to $18.0 million for the same period in the prior year. The increase in operating income is the result of a decrease in depreciation and amortization expense and an impairment recorded in the three months ended November 30, 2014, partially offset by a decrease in operating income before depreciation, amortization, impairment and restructuring and an increase in restructuring and other items expense. During the three months ended November 30, 2014, a compensation expense recovery totaling $13.8 million was recorded related to the Company’s Ontario Digital Media Tax Credit claim (“Tax Credit”). If the Tax Credit is excluded from prior year results, operating income would have increased $15.2 million.
Operating income before depreciation, amortization and restructuring of $42.5 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 the Tax Credit recorded in the prior year as discussed above, partially offset by the operating income before depreciation, amortization and restructuring of the properties acquired in the Sun Acquisition. If the Tax Credit is excluded from the prior year results, operating income before depreciation, amortization and restructuring would have increased $10.7 million or 34%.
Revenue for the quarter was $251.1 million as compared to $169.5 million in the prior year, an increase of $81.6 million. Excluding the impact of the Sun Acquisition, revenue for the quarter was $147.4 million, a decrease of $22.2 million (13.1%) relative to the same period in the prior year. The revenue decline, which excludes the impact of the Sun Acquisition, was primarily due to decreases in print advertising revenue of $16.4 million (17.6%), print circulation revenue of $3.2 million (6.7%) and digital revenue of $1.4 million (5.7%).
Total operating expenses excluding depreciation, amortization and restructuring increased $84.7 million for the quarter, relative to the same period in the prior year. The increase primarily relates to the impact of the properties acquired in the Sun Acquisition, increases in production expenses as a result of the outsourcing of production of The Vancouver Sun and The Province in February 2015 and the recovery of $13.8 million relating to the Ontario Interactive Digital Media Tax Credit in the three months ended November 30, 2014. Partially offsetting these increases were decreases in operating expenses excluding depreciation, amortization and restructuring related to ongoing cost reduction initiatives.
Business Transformation Initiatives
In July 2015 the Company announced it would undertake cost reduction initiatives targeted to deliver $50 million in annualized operating cost savings by the end of fiscal 2017. The Company is now targeting an additional $30 million in annualized cost savings bringing the total of the program to $80 million with the first $50 million to be implemented by the end of the third quarter of fiscal 2016.
During the three months ended November 30, 2015, the Company implemented initiatives which are expected to result in approximately $17 million in net annualized cost savings. In total, the Company has implemented net annualized cost savings of approximately $32 million, or 40% of the $80 million target, since the program was launched.
During the three months ended November 30, 2015 the Company made mandatory principal repayments of $16.3 million in accordance with terms of the Company’s First-Lien Notes indenture. This amount includes $6.5 million tendered in response to the Company’s offer to repurchase First-Lien Notes as a result of the sale of the Vancouver production facility in the fourth quarter of fiscal 2015.
Also during the quarter, the Company’s senior secured asset-based revolving credit facility matured and was not replaced.
“While we have put tremendous focus on the ongoing redesign of our cost structure, we also continue to introduce new initiatives into the marketplace,” said Paul Godfrey, President and Chief Executive Officer. “Our digital audiences are growing, both in size and engagement, and harnessing that power for advertisers through new service offerings including digital marketing services and content marketing is part of our core strategy for the year ahead.”
Note: All dollar amounts are expressed in Canadian dollars unless otherwise specified.