Newspaper & Mailroom

Postmedia Network Reports First Quarter Results

Friday 07. January 2011 - Third consecutive quarter of overall revenue growth. Progress continues in three key areas: growing digital, cutting costs, and repaying debt.

Postmedia Network Canada Corp. (“Postmedia” or “the Company”) today released financial information for the first quarter ended November 30, 2010.
Important Information
On July 13, 2010 Postmedia, through a wholly owned subsidiary, acquired substantially all of the assets and assumed certain liabilities of Canwest Limited Partnership (“Canwest LP”) including all of the outstanding shares of National Post Inc. (“National Post”). All references to financial results for the three months ended November 30, 2009 and any comparisons in this release are references and comparisons to the financial results of Canwest LP, the predecessor company. The financial results of the predecessor company are being presented by the Company in accordance with the terms of the Company’s 12.5% senior secured notes due 2018. The financial results for the three months ended November 30, 2009 are (i) in respect of a period during which the predecessor company, and not the Company, owned the assets underlying the business of the Company, and (ii) based solely on the financial statements prepared by, and provided to the Company by, the predecessor company. The financial information for the three months ended November 30, 2009 does not represent and is not purported to represent the results that would have been achieved had Postmedia owned the assets of Canwest LP and shares of National Post at that time. The prior year financial results are not comparable to our financial information. Readers are cautioned that the prior year financial results are not indicative of the future financial condition, results of operations, cash flows and future development our business.
Operating Results
Revenue for the quarter ended November 30, 2010 totaled $287.1 million, an increase of $0.7 million or 0.2% relative to the same period in the prior year. This was the third consecutive quarter of revenue growth for the publishing business acquired by Postmedia.
Year over year growth in the first quarter included growth in Digital revenue of 4.6%. The websites owned and represented by the Company also achieved a new digital audience milestone in September reaching a record high 8.1 million monthly unique visitors (source: comScore Inc.).
Print advertising revenue grew 1.6% in the quarter versus the prior year period. Print revenue growth was led by national revenue (up 8.8%) which, combined with an increase in insert revenue of 1.4%, more than offset declines in classified (down 3.6%) and retail (down 5.2%). Print circulation revenue in the first quarter declined $1.9 million, or 3.1%, relative to the first quarter of the prior year as a result of a 4.5% decline in net paid print circulation partially offset by higher circulation prices. Other revenue declined $2.2 million in the quarter as a result of the loss, effective September 30, 2010, of a contract to print the Globe & Mail in Vancouver. The reduction in commercial printing revenue was partially offset by revenue increases of $0.6 million from other sources resulting in a net decline in other revenue of $1.6 million relative to the first quarter of the prior year.
Operating profit before amortization, restructuring of operations and other items (see “Non-GAAP Financial Measures”) was $74.2 million in the quarter versus $69.2 million in the first quarter of the prior year, a 7.2% improvement. The improvement was the result of revenue growth combined with declines in compensation, newsprint and other operating expenses. Declines in compensation expense due to restructuring efforts were partially offset by increases in equity compensation resulting in a net decline in compensation expense of $3.3 million (2.9%) relative to the same period in the prior year. Stock-based compensation increased to $1.6 million in the quarter ended November 30, 2010 from $0.2 million in the same quarter in the prior year.
Expenses related to restructuring of operations and other items totaling $23 million were recognized in the quarter relating to restructuring initiatives being implemented in the first half of fiscal 2011. These expenses related primarily to employee severance costs, costs relating to the oversight of the employee restructuring programs and preliminary costs related to a proposed TSX listing. Restructuring initiatives implemented in the first half of fiscal 2011 are expected to yield permanent annualized cost savings of $30 to $35 million, of which $25 to $30 million is expected to be realized in the current fiscal year.
Also in the quarter, Postmedia made total debt repayments of $10.8 million including an optional principal repayment of US$7.5 million related to its US term loan credit facility. After giving effect to this payment, outstanding debt at November 30, 2010 consisted of a $108.6 million Canadian term loan, US$258.3 million US term loan and US$275 million of 12.5% senior secured notes. The company’s cash balance at November 30, 2010 was $21.7 million and the revolving credit facility remains undrawn.
“We continue to make progress on all of our key priorities,” said Paul Godfrey, Chief Executive Officer. “In our first full quarter as Postmedia, we achieved a new online audience milestone, made significant progress in legacy cost reductions and further reduced our outstanding debt. Looking forward, we face an uncertain revenue environment, and as a result continue to put significant focus on our operating cost reduction efforts and maintaining tight control over capital expenditures.”
Note: All dollar amounts are expressed in Canadian dollars unless otherwise specified.