FP Newspapers Inc.
TSX : FP

FP Newspapers Inc.

August 14, 2012 20:29 ET

FP Newspapers Inc. Reports Second Quarter 2012 Results and August 2012 Dividend

WINNIPEG, MANITOBA--(Marketwire - Aug. 14, 2012) - FP Newspapers Inc. (TSX:FP) ("FPI") announces financial results for the quarter ended June 30, 2012. FPI owns securities entitling it to 49% of the distributable cash of FP Canadian Newspapers Limited Partnership ("FPLP").

Second quarter operating results of FPI

FPI had net earnings of $1.3 million, or $0.192 per share, during the three months ended June 30, 2012, compared to net earnings of $1.8 million, or $0.257 per share, in the same quarter last year. The decrease in net earnings in the quarter is primarily due to a $0.6 million decrease in its equity share of the earnings of FPLP compared to last year.

Second quarter operating results of FPLP

FPLP's revenue for the three months ended June 30, 2012 was $28.0 million, a decrease of $1.9 million or 6.3% from the same three months in the prior year. Advertising revenues for the three months ended June 30, 2012 were $19.0 million, a $1.8 million or 8.8% decrease compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, was $12.1 million, a decrease of $1.4 million or 10.4% from the same period in the prior year, primarily due to decreased spending in the retail, telecommunication, government and travel categories. Classified advertising revenues for the second quarter decreased by $0.3 million or 10.6% compared to the same period last year, primarily due to decreased spending in the automotive, employment and real estate categories, partly offset by increased revenue in the obituary category. Flyer distribution revenues for the quarter decreased by $0.1 million or 2.0%, due to a small decrease in volumes and a lower average rate due primarily to some high rate jobs in the prior year that were not repeated in the current year.

Circulation revenues for the second quarter were $6.9 million, a decrease of $0.2 million from the second quarter of 2011, with lower unit sales offsetting increased revenue from higher subscription rates. Commercial printing revenues for the quarter increased by $0.2 million, primarily attributable to increased printing at the Derksen Printers operation. Digital revenues and other revenues for the second quarter remained at relatively the same level compared to the same period last year.

Operating expenses for the three months ended June 30, 2012 were $23.7 million, a $0.5 million or 2.1% decrease from the same quarter last year. Employee compensation costs for the second quarter were unchanged from the prior year, primarily due to fewer employees, partially offset by the 2% wage increase included in the collective agreements. In the second quarter of 2012, seven positions were eliminated by either retirements, voluntary resignations and involuntary terminations, six of which were in May and June. During the second quarter a restructuring charge of $0.1 million was incurred relating to termination payments to employees. In the second quarter of 2011 twelve employees were laid-off and a restructuring charge of $0.3 million was incurred. Newsprint expense for FPLP's own publications for the quarter decreased by $0.2 million or 9.7% compared to the same period in the prior year, primarily due to lower volumes mainly from fewer circulation copies as newsprint prices remained at last year's levels. Newsprint expense for commercial printing increased by $0.1 million primarily due to increased commercial printing at Derksen Printers compared to the second quarter in 2011. Other expenses decreased $0.2 million or 4.4% compared to the same quarter last year, primarily due to more printing jobs that had previously been contracted out, being performed internally.

For the second quarter, EBITDA(1) was lower by $1.4 million or 20.9% compared to the first quarter last year and net earnings for the three months ended June 30, 2012 were $3.8 million, a decrease of $1.3 million.

For the three months ended June 30, 2012, distributable cash attributable to FPI(2) was $1.1 million or $0.164 per share, down from $1.5 million or $0.211 per share for the same quarter last year. The decrease in distributable cash attributable to FPI is primarily the result of lower EBITDA(1) of FPLP.

Six months operating results of FPI

FPI's net earnings were $2.1 million for the six months ended June 30, 2012, compared to net earnings of $2.7 million for the same period last year. The decrease in net earnings for the six months ended June 30, 2012 is primarily due to lower equity earnings from FPI's investment in FPLP compared to 2011.

Six months operating results of FPLP

FPLP's revenue for the six months ended June 30, 2012 was $55.0 million, an increase of $0.1 million or 0.2% from the same period in the prior year. Excluding revenue attributable to the Derksen operation for the first quarters of 2012 and 2011, revenue decreased by $0.8 million or 1.6%. Advertising revenues for the six months ended June 30, 2012, excluding the Derksen business for the first quarter, were $36.5 million, a $1.3 million or 3.5% decrease compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, excluding the Derksen business for the first quarter, was $23.5 million, a decrease of $0.9 million or 3.7% from the same period in the prior year, primarily due to decreased spending in the retail and telecommunications categories, partly offset by increased spending in the automotive and travel categories and new revenue from two third-party magazines. Classified advertising revenues for the six months ended June 30, 2012, on a same-store basis, decreased by $0.5 million or 7.7% compared to the same period last year, primarily due to decreased spending in the employment, automotive and obituary categories, partly offset by increased revenue in the real estate category. Flyer distribution revenues for the six months increased by less than $0.1 million, primarily due to increased volumes.

Circulation revenues for the six months ended June 30, 2012, excluding the Derksen business for the first quarter, were $13.4 million, a decrease of $0.2 million or 1.2% compared to the same period in 2011, with lower unit sales offsetting increased revenue from higher subscription rates. Commercial printing revenues for the six months increased by $0.2 million, which is primarily attributable to, on a same-store basis, increased printing volumes at Derksen Printers during the second quarter. Digital revenues for the six months increased by $0.1 million or 8.1%, primarily due to the increase in Winnipeg Free Press website banner advertising and revenues from online web ads and other digital offerings introduced in 2011. Other income increased by $0.4 million, primarily due to sales of the Winnipeg Jets 2011/12 Officially Licensed Medallion Collection in the first quarter of 2012.

Operating expenses for the six months ended June 30, 2012 were $47.8 million, a $1.9 million or 4.3% increase from the same period last year. Operating expenses year to date, excluding the Derksen business for the first quarter, increased $1.1 million or 2.4% compared to last year. Employee compensation costs for the six months, excluding the Derksen business for the first quarter, increased by $0.2 million or 1.0%, primarily due to the 2% wage increase included in the collective agreements, partially offset by employee reductions near the end of the second quarter as discussed in the second quarter operating results of FPLP paragraphs. Newsprint expense for FPLP's own publications for the six months, excluding the Derksen business for the first quarter, decreased by $0.3 million compared to the prior year, primarily due to lower volumes mainly from fewer circulation copies. Newsprint expense for commercial printing, excluding the Derksen business for the first quarter, increased by $0.2 million primarily due to an increase in commercial printing at Derksen Printers in the second quarter compared to 2011. Other expenses for the first six months ending June 30, 2012, increased $1.3 million or 14.7% compared to the same period last year primarily due to increases during the first quarter, which included new outside print costs for two third-party magazines, costs for the Winnipeg Jets medallion circulation promotion project, a non-recurring reduction in an accrual relating to a labour matter during the first quarter last year and increased costs on our long-term sponsorship agreement with the Winnipeg Jets. Depreciation and amortization remained at relatively the same level compared to the same period last year.

For the six months ending June 30, 2012, EBITDA(1) was lower by $1.9 million or 16.7% compared to last year. Net earnings for the six months ending June 30, 2011 were $6.1 million, a decrease of $1.8 million or 22.5%.

Distributable cash attributable to FPI(2) for the six months ending June 30, 2012 was $1.5 million or $0.224 per share, down from $2.1 million or $0.302 per share for the same period of 2011. The decrease in distributable cash attributable to FPI(2) is primarily a result of lower EBITDA(1) of FPLP.

Long-term debt agreement renewal

We completed the renewal of our long-term debt agreement prior to the January 31, 2013 expiry date of the original agreement. The renewal agreement included the release of $5.0 million of restricted cash as required under the original agreement entered into in January 2010. A reduction in the interest rate spread over bankers' acceptance rates will result in interest savings of approximately $0.6 million annually using current bankers' acceptance rates. The renewal agreement includes annual required principal payments of $1.0 million, payable each June until maturity, a reduction of $4.0 million from the previous agreement.

Dividends

FPI declared dividends to shareholders of $1.0 million or $0.15 per share and $2.0 million or $0.30 per share for the three and six months ended June 30, 2012, unchanged from the same periods of 2011.

August 2012 Dividend

FPI today announced a cash dividend of $0.05 per share, payable on September 28, 2012 to shareholders of record at the close of business on August 31, 2012.

Outlook

Given the disappointing revenue reported during the second quarter and inherent difficulties in forecasting future advertising levels, during the second quarter and continuing into the third quarter, management has made a number of changes to reduce future costs. On the staffing side, fifteen positions have been eliminated through a combination of retirements, voluntary resignations and involuntary terminations. Management is continuing to develop further cost reduction initiatives which will include further voluntary and, if deemed required, involuntary reductions in staff. The annual savings of salaries and benefits from the fifteen positions eliminated total $1.3 million and restructuring costs are $0.2 million. In addition to these compensation savings and the interest expense savings from the long term debt renewal agreement, other operational changes have been implemented which will reduce annual operating expenses in the newsprint, delivery and other expense categories by approximately $1.0 million on an annualized basis.

Newsprint prices have not changed since September 2010 and we do not anticipate a change before the end of this year.

Margo Goodhand, Editor of the Winnipeg Free Press for the past five years, decided it was time to take on new challenges and left the Free Press effective July 31, 2012. Management and staff thank Margo for her efforts over the past five years and wish her great success in her future endeavors. The Free Press team was saddened by the deaths of former Assistant Editor Pat Flynn, Director of Information Technology Terry Kulchycki and long-time columnist Tom Oleson.

Additional Information

Additional information including financial statements and management's discussion and analysis can be found on the Company's website at www.fpnewspapers.com or on SEDAR at www.sedar.com.

Caution Regarding Forward-looking Statements

Certain statements in this news release may constitute forward-looking statements within the meaning of applicable securities laws. All statements other than statements of historical fact are forward-looking statements. These statements include but are not limited to statements regarding management's intent, belief or current expectations with respect to market and general economic conditions, future costs and operating performance. Generally, but not always, forward-looking statements will be indicated by words such as "may", "will", "intend", "anticipate", "expect", "believe", "plan", "is budgeting for" or similar terminology.

Forward-looking statements are subject to known and unknown risks and uncertainties that may cause the actual results, performance or achievements of FPI or FPLP, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the current general economic uncertainty, FPLP's ability to effectively manage growth and maintain its profitability, FPLP's ability to operate in a highly competitive industry, FPLP's ability to compete with other forms of media, FPLP's ability to attract advertisers, FPLP's reliance upon key personnel, FPLP's relatively high fixed costs, FPLP's dependence upon particular advertising customer segments, indebtedness incurred in making acquisitions, the availability of financing for capital improvements, the availability of an extension or refinancing of FPLP's term loan facilities, costs related to capital expenditures, cyclical and seasonal variations in FPLP's revenues, the risk of acts of terrorism, the cost of newsprint, the potential for labour disruptions, the risk of equipment failure, and the effect of Canadian tax laws. Additional information about these and other factors is discussed under "Risk Factors" in FPI's Annual Information Form dated March 15, 2012, which is available at www.sedar.com.

In addition, although the forward-looking statements contained in this news release are based upon what management of FPI and FPLP believe are reasonable assumptions, such assumptions may prove to be incorrect.

Forward-looking statements speak only as of the date hereof and, except as required by law, FPI and FPLP assume no obligation to update or revise them to reflect new events or circumstances. Because forward-looking statements are inherently uncertain, readers should not place undue reliance on them.

About FPI

FPI owns securities entitling it to 49% of the distributable cash of FP Canadian Newspapers Limited Partnership ("FPLP"). FPLP owns the Winnipeg Free Press, the Brandon Sun, and their related businesses, as well as the Canstar Community News division, the publisher of eight community and special interest newspapers in the Winnipeg region, and The Carillon in Steinbach with its related commercial printing operations. The Winnipeg Free Press publishes six days a week for delivery to subscribers and single copy sales, serving Winnipeg and Manitoba with an average Monday through Saturday circulation of approximately 123,300 copies. On Sundays the Winnipeg Free Press publishes a newspaper sold through single-copy retail outlets and vending boxes. The Brandon Sun publishes six days a week, serving the region with an average circulation of approximately 15,000 copies. Canstar Community News publishes weekly with an average circulation of approximately 200,000 copies. The businesses employ approximately 570 people in Winnipeg, Brandon and Steinbach.

Conference Call

The Corporation invites you to participate in a conference call on Wednesday, August 15, 2012 at 12:00 p.m. Eastern (11:00 p.m. Central) to discuss the second quarter results.

The dial-in number is 416-340-9432, or dial toll free at 877-440-9795. To ensure your participation, please dial in five minutes before the start of the conference call. Management's presentation will be followed by a question and answer period.

For those unable to participate, the call will be available to listeners upon completion of the call until August 29, 2012. To hear the replay dial 905-694-9451 or dial toll free at 800-408-3053. The replay code is 4082230.

Non-IFRS financial measures

(1) EBITDA

FPLP believes that in addition to net earnings as reported on FPLP's condensed consolidated statements of earnings, EBITDA is a useful supplemental measure as it is a measure used by many of FPLP's unitholders, creditors and analysts as a proxy for the amount of cash generated by FPLP's operating activities. EBITDA is not a recognized measure of financial performance under IFRS. Investors are cautioned that EBITDA should not be construed as an alternative to net earnings determined in accordance with IFRS as an indicator of FPLP`s performance. FPLP's method of calculating EBITDA may differ from that used by other issuers and, accordingly, EBITDA as calculated by FPLP may not be comparable to similar measures used by other issuers. FPLP's method of calculating EBITDA is detailed in the Management's Discussion and Analysis for the quarter ended June 30, 2012, available on FPI's website at www.fpnewspapers.com or on SEDAR at www.sedar.com.

(2) Distributable Cash Attributable to FPI

FPI believes that in addition to the disclosure of cash flow from operations, distributable cash attributable to FPI is an important supplemental measure of cash flow because it provides investors with an indication of the amount of cash available for distribution to shareholders and because such calculations are required by the terms of the partnership agreement governing FPLP. Distributable cash attributable to FPI is not a defined term under IFRS, and it should not be construed as an alternative to using net earnings or the statements of cash flows as measures of profitability and cash flow. Readers are cautioned that distributable cash as calculated by FPI may not be comparable to similar measures presented by other issuers. FPI used this measure as a factor to determine whether to adjust its monthly dividends to shareholders. FPLP's method of calculating distributable cash attributable to FPI is detailed in the Management's Discussion and Analysis for the quarter ended June 30, 2012, available on FPI's website at www.fpnewspapers.com or on SEDAR at www.sedar.com.

FP Newspapers Inc.
Condensed Statements of Earnings and Comprehensive Income
(unaudited, in thousands of Canadian dollars except per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
2012 2011 2012 2011
$ $ $ $
Equity interest from FP Canadian Newspapers Limited Partnership Class A limited partner units 1,874 2,526 2,994 3,865
Administration expenses (59 ) (107 ) (126 ) (188 )
Other income 2 1 3 2
Net earnings before income taxes 1,817 2,420 2,871 3,679
Current income tax (expense) (485 ) - (2,888 ) -
Deferred income tax recovery (expense) (5 ) (644 ) 2,155 (950 )
Net earnings for the period 1,327 1,776 2,138 2,729
Equity interest of other comprehensive income (loss) from FP Canadian Newspapers Limited Partnership (709 ) (266 ) (1,089 ) (35 )
Deferred income tax recovery (expense) 191 72 293 10
Comprehensive income for the period 809 1,582 1,342 2,704
Weighted average number of Common Shares outstanding 6,902,592 6,902,592 6,902,592 6,902,592
Net earnings per share - basic and diluted $ 0.192 $ 0.257 $ 0.310 $ 0.395
FP Canadian Newspapers Limited Partnership
Condensed Consolidated Income Statements and Statements of Comprehensive Income
(unaudited, in thousands of Canadian dollars)
Three Months Ended
June 30,
Six Months Ended
June 30,
2012 2011 2012 2011
$ $ $ $
Revenue
Advertising 18,967 20,807 36,898 38,004
Circulation 6,941 7,119 13,503 13,636
Commercial Printing 1,172 966 2,213 1,397
Digital 712 728 1,431 1,324
Promotion and services 254 306 980 562
TOTAL REVENUE 28,046 29,926 55,025 54,923
Operating expenses
Employee compensation 11,103 11,094 22,138 21,474
Newsprint and other paper 2,623 2,687 4,989 4,894
Delivery of newspapers 4,344 4,357 8,473 8,357
Other 4,456 4,663 9,969 8,689
Depreciation and amortization 1,085 1,146 2,188 2,215
Restructuring charge 90 264 90 264
OPERATING INCOME 4,345 5,715 7,178 9,030
Other income 45 76 93 124
Finance costs (552 ) (637 ) (1,191 ) (1,267 )
Gain (loss) on interest rate swap (13 ) - 30 -
NET EARNINGS FOR THE PERIOD 3,825 5,154 6,110 7,887
Unrealized gain (loss) on investment (16 ) (5 ) 24 (5 )
Actuarial gain (loss) on defined benefit pension plan (1,447 ) (542 ) (2,223 ) (71 )
COMPREHENSIVE INCOME FOR THE PERIOD 2,362 4,607 3,911 7,811

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