Postmedia Network Reports Fourth Quarter Results

Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three months and year ended August 31, 2013.

Fourth Quarter Operating Results
Net loss in the quarter ended August 31, 2013 was $35.8 million compared to a net loss of $28.4 million in the same period in the prior year. The increase in net loss was primarily the result of an $11.6 million increase in operating losses, partially offset by a reduction in expenses related to long-term debt and derivative financial instruments.

Operating loss in the quarter was $13.9 million as compared to an operating loss of $2.3 million in the same period in the prior year primarily as a result of revenue declines of $20.8 million and a non-cash impairment charge of $6.1 million, partially offset by decreases in operating expenses.

Operating income before depreciation, amortization, impairment and restructuring of $23.2 million in the quarter represents a decrease of $4.9 million (17.5%), relative to the same period in the prior year.

Revenue for the quarter was $169.3 million, a decrease of $20.8 million (10.9%) relative to the same period in the prior year. This decrease was primarily due to a decline in print advertising revenue of $18.2 million (16.2%) with the declines occurring across all categories. Print circulation revenue decreased $1.9 million (3.6%) as a result of declines in circulation volumes partially offset by price increases. Digital revenue decreased $0.5 million (2.4%) relative to the same period in the prior year.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $15.9 million (9.8%) relative to the same period in the prior year. Expense reductions occurred in all operating expense categories including compensation, newsprint, distribution and other operating expenses.

In August 2013, the Company entered into a print outsourcing agreement for the production of the Calgary Herald newspaper commencing in November, 2013. In addition, on September 9, 2013, the Company announced its intention to sell two of its real estate holdings: a printing facility in Surrey, BC and the Calgary Herald building in Alberta.

Full Year Operating Results
Net loss in the year ended August 31, 2013 was $153.8 million compared to a net loss of $23.2 million in the prior year. The decrease was primarily the result of non-cash impairment charges of $100.0 million. Also contributing to the decrease were lower revenues which were largely offset by operating cost reductions, and a gain on sale of the Times Colonist in Victoria and British Columbia-based community newspaper assets to Glacier Media Inc. in the prior year.

Net loss from continuing operations, which includes non-cash impairment charges of $100.0 million, was $153.8 million, compared to a net loss of $37.3 million in the prior year.

Operating loss was $77.0 million as compared to operating income of $39.3 million in the prior year primarily as a result of non-cash impairment charges.

Operating income before depreciation, amortization, impairment and restructuring was $130.4 million, a decrease of $13.9 million relative to the prior year. Excluding non-cash share-based and other long-term incentive plan compensation expense, operating income before depreciation, amortization, impairment and restructuring declined $10.2 million (7.2%).

Revenue for the twelve months ended August 31, 2013 was $751.6 million, a decrease of $80.3 million (9.7%) relative to the prior year. This decrease was primarily due to a decline in print advertising revenue of $69.4 million (13.5%) with the largest declines occurring in the classified and national advertising categories. Print circulation revenue decreased $13.3 million (6.3%) as a result of declines in circulation volumes partially offset by price increases. Digital revenue increased $2.5 million (2.8%) relative to the prior year as a result of increases in local digital advertising revenue partially offset by declines in digital classified revenue.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $66.4 million (9.7%) relative to the prior year. Expense reductions occurred in all operating expense categories including compensation, newsprint, distribution and other operating expenses. Excluding non-cash share-based and other long-term incentive plan compensation expense, operating expenses excluding depreciation, amortization, impairment and restructuring declined $70.2 million (10.2%).

Business Transformation Initiatives
As announced in July 2012, the Company is implementing a three-year transformation program that is targeted to result in operating cost savings of 15%-20%. During the three months ended August 31, 2013, the Company implemented transformation initiatives which are expected to result in net annualized cost savings of approximately $20 million. This brings total net annualized cost savings, since the beginning of the program, to approximately $82 million representing approximately 12% of operating costs at the time the program was announced.

Management Commentary
“This past year was one of accelerated transformation for our industry and our Company,” said Paul Godfrey, President and Chief Executive Officer. “We have changed the overall design of our organization from local silos to a functional reporting structure, had important conversations with various stakeholders from unions and employees to advertisers and readers, and made progress rationalizing our real estate portfolio. With significant progress made on our structure, our teams are better equipped to focus on differentiated product offerings, deepening relationships with our audiences and effectively monetizing these offerings and insights.”

Also announced today that with Paul Godfrey acting as Interim Chairman, Peter Sharpe has been appointed to the role of Lead Director of the boards of both the Company and its subsidiary, Postmedia Network Inc. Mr. Sharpe has served as a Director of both boards since the Company’s formation. Mr. Sharpe served as President and CEO of Cadillac Fairview Corporation until his retirement in 2010, having served with the company for over 25 years. Mr. Sharpe is currently a Director of Morguard Corporation, First Industrial REIT (US), and Allied Property REIT. Mr. Sharpe is also a past chairman and current trustee of the International Council of Shopping Centers.

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

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, on SEDAR at www.sedar.com or on the website maintained by the U.S. Securities and Exchange Commission (the “SEC”) at www.sec.gov.

About Postmedia Network Canada Corp.
Postmedia Network Canada Corp. (TSX:PNC.A, PNC.B) is the holding company that owns Postmedia Network Inc., the largest publisher by circulation of paid English-language daily newspapers in Canada, representing some of the country’s oldest and best known media brands. Reaching millions of Canadians every week, Postmedia engages readers and offers advertisers and marketers integrated solutions to effectively reach target audiences through a variety of print, online, digital, and mobile platforms.

Forward-Looking Information
This news release may include information that is “forward-looking information” under applicable Canadian securities laws and “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. 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, the impact of the Company’s organizational redesign and the ability of the Company to leverage future opportunities. 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: 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 labor disruptions; possible environmental liabilities, litigation and pension plan obligations; not being able to refinance our ABL Facility in July, 2014 on attractive terms or at all; 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, 2013, 2012 and 2011. 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 news 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.

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