FP Newspapers Inc.
TSX : FP

FP Newspapers Inc.

November 13, 2015 18:20 ET

FP Newspapers Inc. Reports Third Quarter 2015 Results

WINNIPEG, MANITOBA--(Marketwired - Nov. 13, 2015) - FP Newspapers Inc. ("FPI") (TSX:FP) announces financial results for the quarter ended September 30, 2015. FPI is the successor to the business of the FP Newspapers Income Fund and owns securities entitling it to 49% of the distributable cash of FP Canadian Newspapers Limited Partnership ("FPLP").

Third quarter operating results of FPI

FPI had net earnings of $0.3 million, or $0.048 per share, during the three months ended September 30, 2015, compared to net earnings of $0.7 million, or $0.107 per share in the same quarter last year.

Third quarter operating results of FPLP

FPLP's revenue for the three months ended September 30, 2015 was $21.1 million, a decrease of $2.4 million or 10.3% from the same three months in the prior year. FPLP's print advertising revenues for the three months ended September 30, 2015 were $12.6 million, a $2.1 million or 14.5% decrease compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, was $7.2 million, a decrease of $1.6 million or 18.4% from the same period in the prior year, primarily due to decreased spending in the national automotive, telecommunications and department store categories. Classified advertising revenues for the third quarter decreased by $0.4 million or 16.1% compared to the same period last year, primarily due to decreased spending across all classified revenue sub-categories. Flyer distribution revenues decreased by $0.1 million or 3.6% compared to the third quarter in 2014, primarily due to a reduction in the volume of flyers delivered.

Print circulation revenues for the three months ended September 30, 2015 were $6.3 million, a decrease of $ $0.1 million or 1.7% compared to the third quarter of 2014, with lower unit sales offsetting increased revenue from slightly higher subscription and single-copy rates. Digital revenues for the second quarter decreased by $0.1 million or 13.4%, primarily due to a decrease in classified advertising revenues and decreased advertising on our mobile apps.

Operating expenses for the three months ended September 30, 2015 were $19.7 million, a decrease of $1.3 million or 6.0% compared to the same quarter last year. Employee compensation costs for the third quarter decreased by $0.4 million or 3.7% from the same period in the prior year, primarily due to a reduction in the number of employees. Newsprint expense for FPLP's own publications for the third quarter decreased by $0.3 million or 16.2% compared to the same period in the prior year, primarily due to lower volumes resulting from fewer circulation copies and a lower average cost per metric tonne. Newsprint expense for commercial printing for the three months ended September 30, 2015 remained at relatively the same level compared to the same period in 2014. Delivery costs decreased by $0.2 million or 6.3%, primarily resulting from lower circulation and flyer volumes and more efficient distribution methods. Restructuring costs for the quarter were $0.1 million and represented the future obligation under a leased facility that will be vacated.

FPLP's net earnings were $1.1 million for the three months ended September 30, 2015, compared to $2.1 million for the same period last year.

EBITDA(1), excluding the restructuring costs for the three months ended June 30, 2015 was $2.6 million, compared to $3.7 million for the same period last year, a decrease of 31.5%. EBITDA(1) margin, for the three months ended June 30, 2015 was 12.1%, compared to 15.8% in the same period last year.

Distributable cash attributable to FPI(2) for the three months ended June 30, 2015 was ($0.1) million or ($0.008) per share, compared to $1.0 million or $0.140 per share for the same period last year.

Dividends

Effective August 14, 2015 the Board of Directors of FPI determined not to declare further dividends at this time. The continuing free cash generated by FPLP will be available for increasing FPLP's long-term debt repayments, new strategic investments and / or restructuring initiatives which improve the returns generated by the businesses. The Board will continue to evaluate the dividend policy on a quarterly basis.

Outlook

Year-over-year declines in print advertising revenue continued in the third quarter across all Canadian Metro markets. The month of September showed an improvement in the level of decline and this improvement has continued into October and early November.

Restructuring efforts looking for efficiency improvements continue to be a major focus at all our businesses. In the fourth quarter the Winnipeg Free Press completed the consolidation of home delivery distribution depots going from three depots down to two. The change will result in decreased trucking and leased facility expenses in addition to allowing for earlier newspaper pick-up by our carrier force. In addition, in the delivery expense area, a tendering process was completed for our single copy trucking and new contracts were awarded to two selected contractors. During the fourth quarter management completed the negotiations to make an investment in an upgraded advertising business system, which is targeted to be implemented by the end of the second quarter next year. The new system offers a wide range of improvements to our advertising customer experience in addition to streamlining and automating various administrative tasks.

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 on 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 11, 2015, which is available at www.sedar.com.

In addition, although the forward-looking statements contained in this news release are based upon assumptions that management of FPI and FPLP believe to be reasonable, 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 six community newspapers in the Winnipeg region, The Carillon in Steinbach with its related commercial printing operations and the Carberry News Express weekly publication. The Winnipeg Free Press publishes six days a week for delivery to subscribers and single copy sales, and publishes a single copy edition on Sundays. Vividata, a third party research firm, which measures newspaper readership across Canadian markets, estimates that weekly 78% of all Winnipeg adults read the print or digital edition of the Winnipeg Free Press. The Brandon Sun publishes six days a week, serving the region with an average circulation of approximately 11,050 copies. Canstar Community News publishes weekly with an average circulation of approximately 200,000 copies. The businesses employ approximately 510 full-time equivalent people in Winnipeg, Brandon, Steinbach and Carberry, Manitoba. Further information can be found at www.fpnewspapers.com and in disclosure documents filed by FP Newspapers Inc. with the securities regulatory authorities, available at www.sedar.com.

Conference Call

FPI invites you to participate in a conference call on Monday, November 16, 2015 at 12:00 p.m. Eastern (11:00 a.m. Central) to discuss the third quarter results.

The dial-in number is 416-340-2216, or dial toll free at 866-223-7781. 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 December 7, 2015. To hear the replay, dial 905-694-9451 or dial toll free at 800-408-3053. The replay code is 2363424.

Non-IFRS financial measures

(1) EBITDA

FPLP believes that in addition to net earnings as reported on FPLP's interim 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 and 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 other issuers and, accordingly, EBITDA may not be comparable to 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, 2015 on FPI's website 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 uses this measure in reviewing dividend levels. 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, 2015 on FPI's website 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
September 30,
Nine Months Ended
September 30,
2015 2014 2015 2014
Equity interest from FP Canadian Newspapers Limited Partnership Class A limited partner units $ 526 $ 1,052 $ 2,498 $ 3,498
Write-down of investment in FP Canadian Newspapers Limited Partnership Class A limited partner units - - (18,600 ) -
Administration expenses (54 ) (39 ) (154 ) (157 )
Other income - - 1 1
Net (loss) earnings before income taxes 472 1,013 (16,255 ) 3,342
Current income tax (expense) (350 ) (386 ) (903 ) (1,150 )
Deferred income tax recovery 209 111 233 239
Net earnings (loss) for the period $ 331 $ 738 $ (16,925 ) $ 2,431
Items that will not be reclassified to net earnings:
Equity interest of other comprehensive (loss) from FP Canadian Newspapers Limited Partnership (375 ) (354 ) (379 ) (1,017 )
Deferred income tax recovery 101 96 102 274
Comprehensive income (loss) for the period $ 57 $ 480 $ (17,202 ) $ 1,688
Weighted average number of Common Shares outstanding 6,902,592 6,902,592 6,902,592 6,902,592
Net earnings (loss) per share - basic and diluted $ 0.048 $ 0.107 $ (2.452 ) $ 0.352

FP Canadian Newspapers Limited Partnership

Condensed Consolidated Income Statements and Statements of Comprehensive Income

(unaudited, in thousands of Canadian dollars)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2015 2014 2015 2014
Revenue
Print advertising $ 12,607 $ 14,737 $ 40,150 $ 46,666
Print circulation 6,337 6,447 18,685 19,009
Commercial printing 1,171 1,228 3,589 3,819
Digital 829 957 2,791 2,718
Promotion and services 195 206 685 643
TOTAL REVENUE 21,139 23,575 65,900 72,855
Operating expenses
Employee compensation 9,426 9,785 28,671 30,582
Newsprint and other paper 1,758 2,057 5,379 6,428
Delivery of newspapers 3,673 3,921 10,953 11,888
Other 3,730 4,087 11,370 12,138
Depreciation and amortization 1,074 1,107 3,226 3,261
Restructuring charge 86 46 170 192
Operating income before impairment 1,392 2,572 6,131 8,366
Impairment of goodwill - - (23,200 ) -
OPERATING INCOME (LOSS) 1,392 2,572 (17,069 ) 8,366
Other income 22 44 69 113
Finance costs (341 ) (470 ) (1,104 ) (1,341 )
Gain on interest rate swap - - - 1
NET EARNINGS (LOSS) FOR THE PERIOD $ 1,073 $ 2,146 $ (18,104 ) $ 7,139
Items that may be reclassified subsequently to net earnings:
Unrealized gain on investment - 7 - 2
Items that will not be reclassified to net earnings:
Remeasurements for defined benefit pension plan (765 ) (722 ) (774 ) (2,075 )
COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD $ 308 $ 1,431 $ (18,878 ) $ 5,066

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