Business News
FP Newspapers Income Fund Reports Second Quarter 2009 Results
Wednesday 12. August 2009 - FP Newspapers Income Fund (TSX:FP.UN) announces financial results for the quarter ended June 30, 2009. FP Newspapers Income Fund owns securities entitling it to 49 percent of the distributable cash of FP Canadian Newspapers Limited Partnership ("FPLP"), which owns the Winnipeg Free Press and Brandon Sun daily newspapers, and Canstar Community News Limited ("Canstar"), which operates six weekly newspapers, a weekly entertainment newspaper and a twice-monthly newspaper aimed at age 50-plus readers in the Winnipeg area, as well as delivery businesses in Winnipeg and Thunder Bay.
Total revenue for FPLP for the three months ended June 30, 2009 was $29.7 million, a $2.7 million or 8.4 percent decrease over the same period last year. The decline in revenue for the quarter was primarily due to reduced advertising revenues resulting from the current economic slowdown. Total EBITDA(1) of FPLP for the quarter was $6.6 million, a $0.9 million or 11.9 percent decrease from the same quarter last year. The reduction in EBITDA(1) was primarily due to the decrease in revenues, partially offset by lower expenses which included a $0.2 million restructuring charge for voluntary and involuntary employee and independent contractor reductions at the Winnipeg Free Press and Canstar Community News Limited. FPLP had net earnings of $2.8 million in the quarter compared to net earnings of $3.7 million in the same quarter last year.
The Fund had net earnings of $2.2 million, or $0.315 per Unit, during the three months ended June 30, 2009, compared to net earnings of $2.5 million, or $0.365 per Unit, in the same quarter last year. The decrease in the Fund’s net earnings in the quarter is primarily due to the decrease in the net earnings of FPLP.
Operations
Advertising revenue in the second quarter was $20.0 million, a $2.6 million or 11.6 percent decrease over the same quarter last year. FPLP’s largest advertising revenue category, display advertising including colour, was $12.1 million, a decrease of $1.2 million or 9.1 percent compared to the same period last year, primarily due to decreased spending in the local and national automotive and employment categories. Classified advertising revenues in the second quarter decreased by $1.2 million or 24.1 percent compared to the same period last year, primarily due to a decrease in the employment, real estate and automotive categories. Flyer distribution revenues in the second quarter decreased by $0.2 million or 4.1 percent compared to the same period last year, due to decreased volumes. Circulation revenues in the second quarter increased by $0.2 million or 2.9 percent, due to rate increases implemented in March 2009 at the Winnipeg Free Press. Commercial printing revenues in the second quarter decreased by $0.4 million or 22.3 percent compared to the same period last year, primarily due to the cancellation of the National Post Winnipeg printing contract. Promotions and Services revenues in the second quarter remained virtually unchanged when compared to the same period last year due to an 18.2 percent increase in online revenues being offset by a decrease in production supplies recycling revenue.
Operating expenses, excluding amortization, in the three months ended June 30, 2009 were $23.1 million, a $1.8 million or 7.3 percent decrease from $24.9 million in the same quarter last year. Operating expenses in the quarter, excluding amortization and the restructuring charge, were $22.9 million, a decrease of $2.0 million or 8.1 percent from the same period in the prior year. Employee compensation costs, excluding the restructuring charge, in the quarter decreased by $1.0 million or 8.9 percent, primarily due to lower costs resulting from employee reductions as well as lower part-time, overtime, long-term incentive and management bonus plan costs. Newsprint expense for FPLP’s own publications in the quarter decreased by $0.6 million or 18.7 percent as a result of lower consumption due to reduced advertising and circulation subscriptions. Newsprint expense for commercial printing in the quarter decreased by $0.1 million or 25.0 percent primarily due to lower consumption as a result of the loss of the National Post printing contract. Delivery costs increased by $0.2 million or 3.7 percent as rates increased due to the collective agreement, as well as increased trucking costs. Other expenses decreased by $0.5 million or 9.7 percent primarily due to lower rental costs associated with the Canstar move into the Winnipeg Free Press building, as well as slightly lower production costs.
During the second quarter, the Winnipeg Free Press was selected as the winner of the prestigious 2009 Excellence in Journalism Award from the Canadian Journalism Foundation. This national award is given annually to a news organization for overall extraordinary performance. The Free Press is the first newspaper west of Ontario to earn this honour. The Free Press submission included the country’s first paid-circulation Pink Paper, its investigative series into the province’s puppy mill industry, its court challenges, charitable campaigns, and other facets of the paper such as its local arts coverage, independent Ottawa bureau, the contest to find the Greatest Manitoban and the subsequent best-selling book. One of the selection judges called the submission “dazzling”.
In June, the Free Press received a citation of merit at Rideau Hall in Ottawa as one of six finalists for the prestigious 2008 Michener Award. The award, named after the former governor general Roland Michener, is given out based on the degree of public benefit generated by the print and broadcast entries submitted. The Free Press was nominated for its two-year investigation into Manitoba’s child-welfare system, sparked by the death of Phoenix Sinclair.
The Free Press has continued to expand its content reach. The newspaper published Bite-Sized Doug, a collection of columns by humourist Doug Speirs, which has spent several weeks at the top of the Manitoba best-seller list for non-fiction paperbacks. The paper printed a second edition of The Hermetic Code, a book on the Manitoba Legislature that has also been a best-seller. In April, the Free Press partnered with the Winnipeg Regional Health Authority to launch Wave, a magazine of health information that is distributed directly to Free Press subscribers and is widely available in Winnipeg hospitals and other health care institutions.
During the second quarter, we completed the rationalization of our non-Free Press delivery contractors and carriers. Since the acquisition of the Canstar Community Newspapers group in 2004, we operated two alternate delivery systems across the City of Winnipeg. The Canstar publications are now delivered by Winnipeg Free Press contract carriers to Free Press subscribers’ doors and by the alternate delivery force of the Winnipeg Free Press to non-subscribers. Flyer delivery to non-Free Press subscribers has been consolidated from three days a week to two. A buy-out package was negotiated for the unionized Canstar trucking agents impacted by this change.
At Canstar, our community and specialty publication group, we launched a new publication called The Sou’wester to help our publications be more reflective of their respective communities. We still deliver to the same number of doors, but we have changed the boundaries of our south Winnipeg publications to make us more relevant to the readers and advertisers in the specific communities encompassed by each publication. The goal is to have The Sou’wester develop a closer connection with the growing southwest area of Winnipeg. Initial response has been exciting. Other media outlets picked up on a “good news” story from the newspaper industry and helped give the new paper some good advance momentum. Since the June 4th launch of the new paper, readers of both The Sou’wester and The Lance (the other publication affected by the boundary change) have responded well. Several readers from both areas have volunteered to be Neighbourhood Forum columnists.
Initial discussion and due diligence work has commenced relating to the refinancing of our $60 million Series A 5.2 percent Senior Secured Notes, which are due on June 5, 2010. The well-publicized tightening of the credit markets which started last year will affect the negotiation of the terms of this refinancing.
At Brandon, the management team, together with members of the Free Press management team, continue to work on completing a submission for renewal of the contract to print the Globe and Mail for the Saskatchewan and Manitoba markets. We anticipate a printing proposal submission will be made to the Globe in the third quarter.
In the second quarter, the Brandon Sun reduced its page width from 24″ to 22″, which will result in newsprint savings for the balance of the year. Television listings products across the country have experienced fewer readers and dwindling advertising revenues over the past few years. In the second quarter, the Brandon Sun discontinued publication of its Select TV publication. Advertisers have been migrated to the core product. Much planning for new on-line products took place in the second quarter. A new main website and a real estate vertical site are planned to launch in the third quarter once testing is complete. An automotive vertical site is also in the planning stages. The Sun conducted a highly successful sales and marketing thrust that added 76 new clients to 12-month high-frequency small-space advertising campaigns. We are also pleased to announce that Jeff Hood, who is a Chartered Accountant, has joined the Brandon Sun and assumed the Controller’s position.
Distributions
Distributable cash attributable to the Fund(2) for the three months ended June 30, 2009 was $2.8 million, or $0.401 per Unit compared to $2.8 million or $0.403 per Unit last year. For the trailing twelve months ended June 30, 2009, FPLP has generated distributable cash attributable to the Fund(2) of $1.010 per Unit, and the Fund has declared distributions of $1.178 per Unit, resulting in a payout ratio of 116.6 percent.
The Fund declared distributions to Unitholders of $0.285 per Unit for the second quarter, compared to $0.323 per Unit for the same quarter last year.
Outlook
During the first two quarters, advertising revenues were impacted by the economic slowdown as reported above. While it is early in the third quarter, July’s advertising revenue decline was steeper than was experienced during the first six months of 2009. The decrease in employee compensation costs, excluding the restructuring charge, of 8.9 percent for the second quarter was the result of the employee reductions from the restructuring plans completed in both the fourth quarter of 2008 and the first quarter of this year. We anticipate a roughly similar percentage reduction in compensation expenses for the third quarter of 2009. Newsprint price reductions which took effect in the first six months of 2009 are resulting in a 22 percent lower price at the start of the third quarter compared to last year. Future newsprint price increases will be implemented, but the timing and level are not yet known.
During the third quarter, Winnipeg and Brandon management and staff will continue to explore and implement changes to reduce operating costs in light of the revenue shortfalls anticipated.