FP Newspapers Inc.
TSX : FP

FP Newspapers Inc.

November 10, 2016 17:33 ET

FP Newspapers Inc. reports third quarter 2016 results

WINNIPEG, MANITOBA--(Marketwired - Nov. 10, 2016) - FP Newspapers Inc. ("FPI") (TSX:FP) announces financial results for the quarter ended September 30, 2016. 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 $0.1 million or $0.013 per share during the three months ended September 30, 2016, compared to net earnings of $0.3 million or $0.048 per share in the same quarter last year.

Third quarter operating results of FPLP

FPLP's revenue for the three months ended September 30, 2016 was $19.2 million, a decrease of $1.9 million or 9.1% from the same three months in the prior year. FPLP's print advertising revenues for the three months ended September 30, 2016 were $10.9 million, a $1.7 million or 13.5% decrease compared to the same period last year. FPLP's largest advertising revenue category, display advertising including colour, was $6.0 million, a decrease of $1.2 million or 17.0% from the same period in the prior year, primarily due to decreased spending in the local and national automotive, government and retail categories. Classified advertising revenues for the third quarter decreased by $0.2 million or 11.0% compared to the same period last year, primarily due to lower spending in the real estate and employment categories, partly offset by an increase in spending in the automotive category. Flyer distribution revenues decreased by $0.3 million or 7.6% compared to the third quarter in 2015, primarily due to a decrease in flyer volumes with much of this decline the result of the consolidation of two large grocery chains and the reduction to one flyer program.

Circulation revenues for the three months ended September 30, 2016 increased by 0.8% compared to the third quarter of 2015 from higher print subscription rates and new digital subscription revenues from the Winnipeg Free Press website, partially offset by lower unit sales. Commercial print revenues decreased by $0.1 million and digital revenues for the third quarter decreased by $0.2 million or 24.5%, primarily due to a decrease in on-line web ad revenues.

Operating expenses for the three months ended September 30, 2016 were $18.5 million, a decrease of $1.2 million or 6.3% compared to the same quarter last year. Employee compensation costs for the third quarter decreased by $0.9 million or 9.6% from the same period in the prior year, primarily due to a reduction in the number of employees across all of our business units. Newsprint expense for FPLP's own publications for the first quarter decreased by $0.1 million or 5.6% compared to the same period in the prior year, primarily due to lower volumes and a change in the weight of paper used, partly offset by increased prices. Newsprint expense for commercial printing for the three months ended September 30, 2016 remained at relatively the same levels compared to last year. Other expenses decreased by $0.2 million or 4.5% compared to the same quarter last year, primarily due to lower outside costs from lower levels of production supplies used and lower outside commission on national sales. Delivery expenses decreased by $0.2 million or 4.1%, primarily from lower delivery volumes and reduced expenses resulting from the consolidation of carrier newspaper bundle pick-up at our Free Press building at the end of the second quarter of 2016.

FPLP's net earnings were $0.4 million for the three months ended September 30, 2016, compared to $1.1 million for the same period last year.

EBITDA(1), for the three months ended September 30, 2016 was $1.8 million compared to $2.5 million for the same period last year, a decrease of 28.7%. EBITDA(1) margin for the three months ended September 30, 2016 was 9.2%, compared to 11.7% in the same period last year.

Distributable cash attributable to FPI(2) for the three months ended September 30, 2015 was ($0.2) million or ($0.032) per share, compared to ($0.1) million or ($0.008) per share for the same period last year.

Outlook

Print advertising revenue year-over-year declines continued in the third quarter across all Canadian Metro markets. October revenues were relatively similar to year-to-date trends. Colliers International released its Fall 2016 Retail Sales Report and is predicting that Manitoba will post the second-biggest year-over-year increase in retail sales in the country in December at 6.2%. The report is based on what has happened so far this year in retail sales and factors in that December sales last year were disappointing last year in most provinces. Early in the fourth quarter Grant Suderman our Vice President of Advertising Sales hired Karen Buss as a new Director of Advertising Sales. Ms. Buss has considerable experience in Business-To-Business sales across a variety of industries.

FP Newspapers Inc. has received confirmation of conditional acceptance of share listing from the TSX Venture Exchange and we anticipate resolving the final outstanding matters and completing the listing change during the fourth quarter.

In early October a group of five actuarial firms in Manitoba wrote a letter to the Premier and Finance Minister urging the provincial government to provide funding relief for sponsors of defined benefit pension plans similar to relief offered by other provinces. In addition to recommending an extension from five to ten years for amortizing solvency deficiencies, similar to relief offered in 2008 and 2011, the actuarial firms have requested a comprehensive review of solvency funding framework in the Province. In 2016, based on current pension funding rule, FPLP will contribute a total of $4.8 million to the defined benefit plan, representing approximately 20% of employees' pensionable earnings.

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 9, 2016, 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 75% 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 475 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 14, 2016 at 12:00 p.m. Eastern (11:00 a.m. Central) to discuss the third quarter results.

The dial-in number is 416-340-8530, or dial toll free at 800-766-6630. 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 15, 2016. To hear the replay, dial 905-694-9451 or dial toll free at 800-408-3053. The replay code is 3311549.

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 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 September 30, 2016 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 September 30, 2016 on FPI's website www.fpnewspapers.com or on SEDAR at www.sedar.com.

FP Newspapers Inc.
Condensed Statements of (Loss) and Comprehensive (Loss)
(unaudited, in thousands of Canadian dollars except per share amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2016 2015 2016 2015
Equity interest from FP Canadian Newspapers Limited Partnership Class A limited partner units $ 196 $ 526 $ 1,326 $ 2,498
Write-down of investment in FP Canadian Newspapers Limited Partnership Class A limited partner units - - (6,200 ) (18,600 )
Administration expenses (38 ) (54 ) (143 ) (154 )
Other income - - 1 1
Net income (loss) before income taxes 158 472 (5,016 ) (16,255 )
Current income tax recovery (expense) 134 (350 ) (47 ) (903 )
Deferred income tax (expense) recovery (202 ) 209 (280 ) 233
Net income (loss) for the period $ 90 $ 331 $ (5,343 ) $ (16,925 )
Equity interest of other comprehensive gain (loss) from FP Canadian Newspaper Limited Partnership 240 (375 ) (1,191 ) (379 )
Deferred income tax (expense) recovery (65 ) 101 321 102
Comprehensive income (loss) for the period $ 265 $ 57 $ (6,213 ) $ (17,202 )
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 $ 0.013 $ 0.048 $ (0.774 ) $ (2.452 )
FP Canadian Newspapers Limited Partnership
Condensed Consolidated (Loss) Statements and Statements of Comprehensive (Loss)
(unaudited, in thousands of Canadian dollars)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2016 2015 2016 2015
Revenue
Print advertising $ 10,899 $ 12,607 $ 34,831 $ 40,150
Circulation 6,385 6,337 18,673 18,685
Commercial printing 1,085 1,171 3,509 3,589
Digital 626 829 1,968 2,791
Promotion and services 214 195 643 685
TOTAL REVENUE 19,209 21,139 59,624 65,900
Employee compensation 8,526 9,426 26,125 28,671
Newsprint and other paper 1,670 1,758 5,070 5,379
Delivery of newspapers 3,509 3,673 10,606 10,953
Other 3,577 3,730 10,692 11,370
Depreciation and amortization 1,058 1,074 3,188 3,226
Restructuring charge 168 86 306 170
Operating income before impairment 701 1,392 3,637 6,131
Impairment of goodwill - - (12,700 ) (23,200 )
OPERATING INCOME (LOSS) 701 1,392 (9,063 ) (17,069 )
Other income 18 22 57 69
Finance costs (318 ) (341 ) (988 ) (1,104 )
NET EARNINGS (LOSS) FOR THE PERIOD $ 401 $ 1,073 $ (9,994 ) $ (18,104 )
Items that will not be reclassified to net earnings:
Remeasurements for defined benefit pension plan 489 (765 ) (2,430 ) (774 )
COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD $ 890 $ 308 $ (12,424 ) $ (18,878 )

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