Postmedia 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, 2015. The results for the three months and year ended August 31, 2015 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, 2015 was $54.1 million, as compared to $49.8 million for the same period in the prior year. The increase in net loss was primarily the result of an increase 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, partially offset by a reduced operating loss and a recovery of income taxes.

Operating loss in the quarter was $5.7 million, as compared to $28.1 million for the same period in the prior year. The improvement over the loss in the prior year is primarily the result of operating income from the properties acquired in the Sun Acquisition and a decrease in depreciation expense.

Operating income before depreciation, amortization and restructuring of $22.3 million in the quarter represents an increase of $6.6 million relative to the same period in the prior year. Excluding the impact of the Sun Acquisition, operating income before depreciation, amortization and restructuring decreased $6.1 million for the quarter.

Revenue for the quarter was $230.2 million as compared to $146.8 million for the same period in the prior year, an increase of $83.4 million. Excluding the impact of the Sun Acquisition, revenue for the quarter was $133.8 million, a decrease of $13.0 million (8.8%) relative to the same period in the prior year. This decline was due to decreases in print advertising revenue of $10.2 million (13.7%), print circulation revenue of $2.3 million (4.8%) and digital revenue of $0.5 million (2.4%).

Total operating expenses excluding depreciation, amortization and restructuring increased $76.8 million for the quarter, relative to the same period in the prior year. Excluding the impact of the Sun Acquisition, total operating expenses excluding depreciation, amortization and restructuring decreased $6.9 million (5.2%). These expense decreases occurred in most operating expense categories including compensation, newsprint and distribution expenses. Production expenses increased as a result of outsourcing of the production of the Montreal Gazette in August 2014 and both The Vancouver Sun and The Province in February 2015.

Full Year Operating Results

Net loss in the year ended August 31, 2015 was $263.4 million, as compared to $107.5 million in the prior year. The increase in net loss was primarily the result of a $153.0 million non-cash impairment charge and an increase in non-cash foreign currency exchange losses related to the carrying value of the Company’s US dollar denominated debt, partially offset by net income from the properties acquired in the Sun Acquisition and a recovery of income taxes.

The operating loss was $148.4 million for the year ended August 31, 2015, as compared to $35.5 million in the prior year. The increase in operating loss was primarily the result of a $153.0 million non-cash impairment charge partially offset by operating income from the properties acquired in the Sun Acquisition.

Operating income before depreciation, amortization, impairment and restructuring was $111.4 million, an increase of $1.9 million (1.7%) relative to the prior year. Excluding the impact of the Sun Acquisition, operating income before depreciation, amortization, impairment and restructuring decreased $19.1 million (17.4%) for the year ended August 31, 2015. This decrease relates to decreases in revenue of $77.6 million, partially offset by decreases in operating expenses of $58.5 million which includes a compensation expense recovery totalling $17.3 million related to the Company’s Ontario Interactive Digital Media Tax Credit claim.

Revenue for the year ended August 31, 2015 was $750.3 million as compared to $674.3 in the prior year, an increase of $76.0 million (11.3%). Excluding the impact of the Sun Acquisition, revenue decreased $77.6 million (11.5%) for the year ended August 31, 2015. This decline was due to decreases in print advertising revenue of $67.2 million (17.9%), print circulation revenue of $9.7 million (5.0%) and digital revenue of $1.3 million (1.5%).

Total operating expenses excluding depreciation, amortization, impairment and restructuring increased $74.1 million (13.1%) for the year ended August 31, 2015, as compared to the prior year. Excluding the impact of the Sun Acquisition and the recovery of $17.3 million relating to the Ontario Interactive Digital Media Tax Credit, total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $41.2 million (7.3%). These expense decreases occurred in most operating expense categories including compensation, newsprint and distribution expenses. Production expenses increased as a result of outsourcing of the production of the Calgary Herald in November 2013, the Montreal Gazette in August 2014 and both The Vancouver Sun and The Province in February 2015.

During the year ended August 31, 2015, the Company recorded impairments totaling $153.0 million. This total includes $150.7 million related to goodwill and intangible assets and $2.3 million related to assets held-for-sale.

Business Transformation Initiatives

In July 2015, the Company announced it would undertake cost reduction initiatives targeted to deliver $50 million in operating cost savings by the end of fiscal 2017. During the three months ended August 31, 2015 the Company implemented initiatives which are expected to result in approximately $14.0 million in net annualized cost savings.

Debt Repayment

During the year ended August 31, 2015, the Company made mandatory principal repayments of $16.0 million in accordance with terms of the Company’s First-Lien Notes indenture.

Subsequent Events

Subsequent to August 31, 2015, a total of $6.5 million aggregate principal amount of First-Lien Notes were tendered for repurchase with the proceeds from the sale of the Vancouver newspaper's production facility.

The Company’s senior secured asset-based revolving credit facility (“ABL Facility”) matured on October 16, 2015 and was not replaced. The Company expects to be able to adequately fund future obligations without the use of this type of financing.

Management Commentary

“This has been a year of tremendous transformation at Postmedia,” said Paul Godfrey, President and Chief Executive Officer. “Since the acquisition of our new Sun Media brands the integration process has accelerated within our expanded Postmedia team. While we continue to face the significant challenges to our traditional business model, the year ahead will see us leveraging our new scale and launching expanded product and service offerings to Canadian audiences and marketers.”

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., 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 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, the ability to fund future obligations without the use of ABL Facility type financing, 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: 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 industry conditions and 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, 2015, 2014 and 2013. 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.

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