August 11, 2017 Last Updated 8:43 am

FP Newspapers sees revenue fall 9.5% in Q2, cuts costs through staff reductions

WINNIPEG, Manitoba – August 10, 2017 – FP Newspapers Inc.  announces financial results for the quarter ended June 30, 2017. FPI owns securities entitling it to 49% of the distributable cash of FP Canadian Newspapers Limited Partnership (“FPLP”).

Second quarter operating results of FPI

FPI reported net earnings of $0.6 million for the three months ended June 30, 2017, compared to a net loss of $5.7 million for the same period last year, due to a non-cash write-down of $6.2 million in the carrying value of its investment in FPLP. Excluding the non-cash write-down in the equity investment in FPLP in 2016 the net earnings were $0.4 million.

Second quarter operating results of FPLP

FPLP’s revenue for the three months ended June 30, 2017 was $18.8 million, a decrease of $2.0 million or 9.5% from the same three months in the prior year. FPLP’s print advertising revenues for the three months ended June 30, 2017 were $10.8 million, a $1.4 million or 11.7% decrease compared to the same period last year. FPLP’s largest advertising revenue category, display advertising including colour, was $6.1 million, a decrease of $0.9 million or 12.8% from the same period in the prior year, primarily due to decreased spending in the local and national automotive, travel and financial categories, partly offset by increased spending in the telecommunication category. Classified advertising revenues for the first quarter decrease d by $0.3 million or 13.1% compared to the same period last year, primarily due to lower spending in the real estate, automobile and employment categories. Flyer distribution revenues decreased by $0.3 million or 8.6% compared to the second quarter in 2017, primarily due to a decrease in flyer volumes, partly offset by slightly higher rates.

Circulation revenues for the three months ended June 30, 2017 were virtually unchanged from the second quarter of 2016, with lower unit sales offsetting increased revenue from higher print subscription rates and new digital subscription revenues from the Winnipeg Free Press website. Digital revenues for the second quarter decreased by $0.2 million or 27.7%, primarily due to a decrease in on-line web ads. Commercial services revenue decreased by $0.3 million due to both fewer page counts printed for recurring customers as well as non-recurring print jobs.

Operating expenses for the three months ended June 30, 2017 were $16.9 million, a decrease of $2.1 million or 11.0% compared to the same quarter last year. Employee compensation costs for the first quarter decreased by $1.0 million or 11.4% from the same period in the prior year, primarily due to a reduction in the number of employees across all of our business units. Newsprint expense for FPLP’s own publications for the first quarter decreased by $0.1 million or 10.6% compared to the same period in the prior year, primarily due to lower volumes. Delivery expenses for the three months ended June 30, 2017 decreased by $0.3 million or 8.8%, primarily due to the cost savings related to the consolidation of the carrier depots. Other expenses decreased by $0.2 million or 5.3%, primarily from the loss of national commission costs with these efforts assumed by existing staff.

EBITDA(1) for the three and six months ended June 30, 2017 was $2.7 million and $4.4 million compared to $2.9 million and $5.1 million for the same periods last year, a decrease of 5.9% and 9.5%, respectively. EBITDA(1) margin for the three and six months ended June 30, 2017 was 14.4% and 11.9%, compared to 13.8% and 12.5%in the same periods last year. The changes in EBITDA(1) were due to the revenue and operating expense paragraphs above.

FPLP’s net earnings were $1.6 million and $2.3 million for the three and six months ended June 30, 2017, compared to $1.5 million and $2.3 million for the same periods last year, excluding the $12.7 million impairment charge relating to goodwill.

Outlook

Print advertising revenue year-over-year declines continued in the second quarter at roughly the same pace as experienced in the first quarter. Improvements in the level of expense reductions in the second quarter contributed to the EBITDA decline of just under 6% in the second quarter compared to the 22% decline experienced in the first quarter. Early in the third quarter we are seeing continued revenue declines at levels similar to the first two quarters.

We are pleased with the progress made to date in strengthening our balance sheet after making the decision previously to stop distributions to shareholders. In the first six months of 2017, net debt, defined as gross debt less cash on hand, decreased to $24.1 million compared to $29.3 at December 31, 2016. The long term debt facility requires our gross term debt be a maximum of $30 million at January 31, 2018, so an additional principal payment will be made prior to that date, as our gross debt in the term facility is $33.0 million at the end of the second quarter.

On Saturday May 13, unionized employees of the Winnipeg Free Press and Canstar Community news voted in favour of ratifying a Memorandum of Agreement which among other things extends the current in-force contract from June 30, 2018 to June 30, 2019. The July 1, 2017 increase which was previously 1.5% was reduced to 0.75% and there is no additional increase in 2018. Contingency language was included in the memorandum if free cash (as defined in the agreement) falls below $0.8 million for a rolling twelve month period, an eight percent wage reduction would apply for the majority of employees. Other employees on the reduced compensation grid would take a four percent reduction. The free cash calculation is to be completed on a rolling twelve month basis completed quarterly with the first measurement taking place on December 31, 2017. Nothing in the Memorandum of the Collective Agreement prevents the parties from reconvening to formally discuss another agreement should there be dramatic changes in the business model. The agreement also allowed for the appointment of a union representative to join the Board of Directors of both the general partner, FPCN General Partner Inc. and the public company, FP Newspapers Inc. Aldo Santin, a journalist at the Winnipeg Free Press and president of the union local, will join the general partner board at the August board meeting and have an observer role on the public company board until a shareholder’s vote can be completed during the 2017 Annual General Meeting to seek his formal appointment to the public company board.

Winnipeg and surrounding communities look forward to hosting the Canada Summer Games which commence with the opening ceremony Friday July 28, 2017. Approximately four thousand athletes and coaches will take part in 250 events in 16 sports in Winnipeg, Gimli and Kenora, Ontario. The games run until August 13, 2017.

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