Business News

FP Newspapers Income Fund Reports Second Quarter 2010 Results

Thursday 12. August 2010 - FP Newspapers Income Fund ("the Fund") (TSX:FP.UN) announces financial results for the quarter ended June 30, 2010. 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 ("Canstar"), which operates six weekly newspapers, a weekly entertainment newspaper and a twice-monthly newspaper aimed at age 50-plus readers.

Total revenue for FPLP for the three months ended June 30, 2010 was $28.9 million, a $0.7 million or 2.5 percent decrease from the same period last year. Total EBITDA(1) of FPLP for the quarter was $7.1 million, a $0.5 million or 7.4 percent increase from the same quarter last year. EBITDA(1) in the second quarter, excluding the 2009 restructuring charges of $0.2 million, increased by $0.3 million or 4.4 percent. FPLP had net earnings of $4.9 million in the quarter compared to $2.8 million in the same quarter last year. The increase in net earnings is primarily due to the increase in EBITDA(1) and the reduction of interest expense associated with the settlement of the subordinated notes in the fourth quarter of 2009.

The Fund had net earnings of $2.0 million, or $0.297 per Unit, during the three months ended June 30, 2010, compared to net earnings of $2.2 million, or $0.315 per Unit, in the same quarter last year. The decrease in the Fund’s net earnings in the quarter is primarily due to costs associated with the agreement to convert the trust to a corporation, as approved by the Unitholders during the May 5, 2010 annual general meeting.

Operations

Advertising revenues for the three months ended June 30, 2010 were $19.8 million, a $0.3 million or 1.3 percent decrease compared to the same period last year. FPLP’s largest advertising revenue category, display advertising including colour, was $12.5 million, an increase of $0.5 million or 4.0 percent from the same period in the prior year, primarily due to increased spending in the national automotive category. Classified advertising revenues for the second quarter decreased by $0.5 million or 13.2 percent compared to the same period last year, primarily due to a decrease in the employment and real estate categories. Flyer distribution revenues for the second quarter decreased by $0.2 million or 5.5 percent compared to the same period last year, primarily due to decreased volumes as a result of the sale of the Thunder Bay distribution operation.

Operating expenses excluding amortization for the second quarter were $21.9 million, a $1.2 million or 5.3 percent decrease from $23.1 million in the same quarter last year. Operating expenses for the second quarter, excluding amortization and the restructuring charge, decreased by $1.0 million or 4.5 percent from the same quarter last year. Employee compensation costs, excluding the restructuring charge, for the second quarter remained virtually unchanged when compared to the same period last year, with savings from staff reductions and lower part-time hours offset by the 2-percent wage increases included in the collective bargaining agreements. Newsprint expense for FPLP’s own publications for the second quarter decreased by $0.4 million or 16.1 percent, with virtually the entire difference due to lower newsprint prices. Newsprint expense for commercial printing for the second quarter decreased by 8.8 percent from the same period in the prior year, due to lower newsprint prices partially offset by higher consumption. Delivery costs for the second quarter decreased by $0.7 million or 14.5 percent, primarily due to eliminating the Sunday Winnipeg Free Press home-delivered newspaper, reducing Winnipeg non-subscriber weekly flyer distribution by one day, and no longer incurring Thunder Bay costs due to the sale of that distribution business. Other expenses for the second quarter increased by $0.1 million or 2.8 percent, primarily due to an increase in the Winnipeg Free Press building maintenance costs.

During the second quarter two Winnipeg Free Press editorial staff members were recipients of national awards recognizing their work. Reporter Kevin Rollason won a national “great ideas” award from the Canadian Newspaper Association for his 2009 feature story detailing the legacy of prominent and notable Manitobans. Free Press intern Arielle Godbout won the Gregory Clark award from the Canadian Journalism Foundation in June. This award is designed to offer working journalists, early in their careers, a professional development opportunity which will allow them to gain insight, strategic information and meet key decision-makers in a sector or issue they regularly cover. The award will allow Arielle to conduct additional research on a story she first wrote for the Free Press last summer on gun smuggling in Canada.

During the second quarter, the Winnipeg Free Press has continued to work on the expansion of its offering of digital services. During the quarter, the Free Press launched a new golf tee-time booking service which allows individuals to book tee-times at over 40 city and rural golf courses. Future revenue opportunities will be generated largely from banner advertising on the site.

The finance team has completed the transition of cash management services to HSBC Bank Canada and is continuing to work on the consolidation of business systems between the Brandon Sun and Winnipeg Free Press.

Canstar Community News was also very active during the second quarter. On May 20, Uptown Magazine printed its Best of Winnipeg issue, featuring the results of its annual readers’ survey. Sales for this edition were the highest figure since the acquisition of the Uptown magazine in 2005. On May 27, a redesigned and rebranded version of The Prime Times made its debut, featuring a profile of long-time Winnipeg family entertainer Fred Penner. This publication now looks and reads much more like a magazine and includes two feature-length stories in every issue, as well as regular columns on active living, finance, travel, homes, technology, food, history and sports.

The Brandon Sun management team, together with members of the Winnipeg Free Press management team, continue to work on preparations for consolidating the production operations at our Winnipeg print facility, which will take effect October 1, 2010. Management is continuing to study various options with respect to both the Brandon building and production equipment.

During the second quarter, the advertising department at the Brandon Sun completed a major sales campaign designed to attract small budget and new customers to enter into 12-month ad campaigns for twice-weekly advertising buys. The campaign was similar to one which was introduced last year and has expanded the advertising customer base in Brandon.

The Brandon Sun re-designed and re-launched its website during the second quarter. An on-line coordinator position was created from within existing staffing levels to monitor and update the site as needed. The new website has attracted an increased number of unique visitors.

Distributions

Distributable cash attributable to the Fund(2) for the three months ended June 30, 2010 was $2.3 million or $0.330 per Unit, compared to $2.8 million or $0.401 per Unit last year. For the trailing twelve months ended June 30, 2010, FPLP has generated distributable cash attributable to the Fund(2) of $1.346 per Unit, and the Fund has declared distributions of $0.930 per Unit, resulting in a payout ratio of 69.1 percent.

The Fund declared distributions to Unitholders of $0.180 per Unit for the second quarter, compared to $0.285 in the same quarter last year.

Outlook

During the first two quarters, increases in display advertising revenues were more than offset by lower classified revenues, largely in the employment category, and flyer distribution revenues. While it is early in the third quarter we’re seeing a small improvement in the advertising revenue trend. Newsprint price increases were effective during the second quarter and a further increase has been made effective July 1. If there are no further price increases for the remainder of 2010, the third and fourth quarter would see newsprint prices at a roughly 2 percent higher level than the same quarters in 2009. Lower delivery expenses will continue throughout the third and fourth quarters.

We are pleased to announce that Bruce Leslie has been hired as the Vice President of Marketing at the Winnipeg Free Press. Mr. Leslie, who started his professional career as a journalist working for the CBC, has an extensive background in marketing and community relations. Mr. Leslie will be a valued senior executive in Winnipeg and will strengthen our position as the number one provider of news and information in Winnipeg.