TORONTO--(BUSINESS WIRE)--

Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three months and year ended August 31, 2016. The results for the three months and year ended August 31, 2016 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 (the “Sun Acquisition”).

Fourth Quarter Operating Results

Net loss in the quarter ended August 31, 2016 was $99.4 million, as compared to $54.1 million in the same period in the prior year. The increase in net loss was primarily the result of an increase in operating loss, which includes a $60.7 million non-cash impairment charge, partially offset by decreases in non-cash losses on derivative financial instruments and non-cash foreign currency exchange losses related to the carrying value of the Company’s US dollar denominated debt.

Operating income before depreciation, amortization, impairment and restructuring of $7.4 million in the quarter represents a decrease of $14.9 million relative to the same period in the prior year. The decrease is due to revenue declines which were only partially offset by operating cost savings related to cost saving initiatives.

Revenue for the quarter was $198.7 million as compared to $230.2 million in the prior year, a decrease of $31.6 million (13.7%). The revenue decline was primarily due to decreases in print advertising revenue of $26.4 million (21.3%) and print circulation revenue of $5.6 million (8.0%). Digital revenue increased by 0.8% in the quarter.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $16.6 million (8.0%) for the quarter, relative to the same period in the prior year. The decrease was primarily related to cost reduction initiatives implemented prior to August 31, 2016.

Full Year Operating Results

Net loss in the year ended August 31, 2016 was $352.5 million, as compared to $263.4 million in the prior year. The increase in net loss was the result of an increase of $114.7 million related to non-cash impairment charges and an increase in interest expense, partially offset by non-cash foreign currency exchange gains related to the carrying value of the Company’s US dollar denominated debt and a decrease in non-cash losses on derivative financial instruments.

Operating income before depreciation, amortization, impairment and restructuring for the year ended August 31, 2016 was $82.3 million, a decrease of $29.1 million (26.1%) relative to the prior year. The decrease is due to revenue declines which were only partially offset by operating cost savings related to the cost savings initiatives, and the operating income before depreciation, amortization and restructuring of the properties acquired in the Sun Acquisition. In addition, during the year ended August 31, 2015, a compensation expense recovery of $17.3 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 before depreciation, amortization, impairment and restructuring would have decreased $11.8 million (12.5%).

Revenue for the year ended August 31, 2016 was $877.2 million as compared to $750.3 million in the prior year, an increase of $126.9 million (16.9%). Excluding the impact of the Sun Acquisition, revenue for the year ended August 31, 2016 was $518.6 million, a decrease of $78.1 million (13.1%) relative to the prior year. The revenue decline excluding the impact of the Sun Acquisition was primarily due to decreases in print advertising revenue of $58.8 million (19.1%), print circulation revenue of $14.0 million (7.6%) and digital revenue of $1.9 million (2.2%).

Total operating expenses excluding depreciation, amortization, impairment and restructuring increased $155.9 million for the year ended August 31, 2016, relative to 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 fact that there was no Tax Credit in the year ended August 31, 2016 compared to a recovery of $17.3 million in the year ended August 31, 2015. Partially offsetting these increases were decreases in operating expenses excluding depreciation, amortization, impairment 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 “Transformation Program”). The operating cost savings target was subsequently updated to $80 million in net annualized cost savings which is expected to be completed in the first quarter of fiscal 2017.

These cost reductions are expected to come from a combination of acquisition synergies and further reorganization of the Company’s operations. During the three months ended August 31, 2016, the Company implemented initiatives which are expected to result in an additional $11 million of net annualized cost savings under the Transformation Program. In total, the Company has implemented net annualized cost savings of approximately $75 million of operating costs since the program was announced in July 2015.

The Company intends to undertake additional cost savings initiatives throughout fiscal 2017. As part of these efforts, today the Company announced a staff reduction program aimed at reducing salary expenses by 20%. The initiative includes a Company-wide Voluntary Buyout (VBO) Program. The reductions will come from all levels and operations across Postmedia.

Recapitalization Transaction

On October 5, 2016, the Company completed a recapitalization transaction (the “Recapitalization Transaction”) by way of a corporate plan of arrangement under the Canada Business Corporations Act which has the following key elements:

• the 8.25% senior secured notes issued by Postmedia Network Inc. (“PNI”) due August 2017 have been extended by approximately four years to July 2021 and reduced to C$225 million with a cash repayment of approximately C$78 million at par;
• all of the 12.50% senior secured notes issued by PNI due July 2018 in the aggregate principal amount of approximately US$268.6 million, together with all interest accrued from and after July 15, 2016, have been exchanged for approximately 98% of the total number of voting shares and variable voting shares of the Company;

• the voting shares and variable voting shares of the Company have been consolidated on the basis of one post-consolidation variable voting share for every 150 pre-consolidation variable voting shares and one post-consolidation voting share for every 150 pre-consolidation voting shares;
• approximately US$84.4 million of new capital has been invested in the form of new U.S. dollar denominated second lien secured notes due July 2023 with no cash interest for the first three years, subject to certain conditions;
• the Company’s total debt has been reduced by approximately C$307 million and its annual cash interest expense has been reduced by approximately C$50 million; and
• obligations to employees, customers and suppliers were not affected by the Recapitalization Transaction.

Management Commentary

“We continue to operate in a challenging industry,” said Paul Godfrey, President and CEO. “We do see some hopeful signs in our newer revenue initiatives. We will continue to transform our business to address the industry disruption.”

Additional Information

Additional information, including financial statements and management’s discussion and analysis can be found on the Company’s website at www.postmedia.com/investors/financial-reports or on SEDAR at www.sedar.com.

Note: All dollar amounts are expressed in Canadian dollars unless otherwise specified.

About Postmedia Network Canada Corp.

Postmedia Network Canada Corp. (TSX:PNC.A, PNC.B) is the holding company that owns Postmedia Network Inc., a Canadian newsmedia company representing more than 200 brands across multiple print, online, and mobile platforms. Award-winning journalists and innovative product development teams bring engaging content to millions of people every week whenever and wherever they want it. This exceptional content, reach and scope offers advertisers and marketers compelling solutions to effectively reach target audiences. For more information, visit www.postmedia.com.

Forward-Looking Information

This news release may include information that is “forward-looking information” under applicable Canadian securities laws. The Company has tried, where possible, to identify such information and statements by using words such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “may,” “will,” “could,” “would,” “should” and similar expressions and derivations thereof in connection with any discussion of future events, trends or prospects or future operating or financial performance. Forward-looking statements in this news release include statements with respect to the implementation and results of the Company’s transformation initiatives, the realization of anticipated cost savings. By their nature, forward-looking information and statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These risks and uncertainties include, among others: the risks associated with the possible failure to realize the anticipated synergies in integrating the operations of the Sun Media publications with the operations of Postmedia; competition from other newspapers and alternative forms of media; the effect of economic conditions on advertising revenue; the ability of the Company to build out its digital media and online businesses; the failure to maintain current print and online newspaper readership and circulation levels; the realization of anticipated cost savings; possible damage to the reputation of the Company’s brands or trademarks; possible labour disruptions; possible environmental liabilities, litigation and pension plan obligations; fluctuations in foreign exchange rates and the prices of newsprint and other commodities. For a complete list of our risk factors please refer to the section entitled “Risk Factors” contained in our annual management’s discussion and analysis for the years ended August 31, 2016 and 2015. Although the Company bases such information and statements on assumptions believed to be reasonable when made, they are not guarantees of future performance and actual results of operations, financial condition and liquidity, and developments in the industry in which the Company operates, may differ materially from any such information and statements in this press release. Given these risks and uncertainties, undue reliance should not be placed on any forward-looking information or forward-looking statements, which speak only as of the date of such information or statements. Other than as required by law, the Company does not undertake, and specifically declines, any obligation to update such information or statements or to publicly announce the results of any revisions to any such information or statements.

Postmedia Network Canada Corp.

Consolidated Statements of Operations

(UNAUDITED)

Postmedia Network Canada Corp.

Consolidated Statements of Financial Position

(UNAUDITED)

Postmedia Network Canada Corp.

Consolidated Statements of Cash Flows

(UNAUDITED)

View source version on businesswire.com: http://www.businesswire.com/news/home/20161020006248/en/