VANCOUVER, BRITISH COLUMBIA--(Marketwired - Aug. 14, 2013) - GVIC Communications Corp. ("GVIC" or the "Company") (TSX:GCT) reported cash flow, earnings and revenue for the period ended June 30, 2013.
Summary Results
Results are reported below on an adjusted basis to include the Company's share of the results of its joint ventures. Management bases its operating decisions and performance evaluation utilizing these results. Refer to Change in Accounting Policy on page 5 for discussion of the accounting change and results in accordance with IFRS.
| thousands of dollars except share and per share amounts | Three months ended June 30, 2013 (5) |
Three months ended June 30, 2012 (5) |
Six months ended June 30, 2013 (5) |
Six months ended June 30, 2012 (5) |
||||||||
| Revenue | $ | 89,070 | $ | 91,388 | $ | 165,910 | $ | 167,809 | ||||
| EBITDA (1) | $ | 13,515 | $ | 17,212 | $ | 21,554 | $ | 28,310 | ||||
| EBITDA margin (1) | 15.2 | % | 18.8 | % | 13.0 | % | 16.9 | % | ||||
| EBITDA per share (1) | $ | 0.045 | $ | 0.057 | $ | 0.072 | $ | 0.094 | ||||
| Net income attributable to common shareholders | $ | 1,889 | $ | 6,389 | $ | 1,255 | $ | 9,372 | ||||
| Net income attributable to common shareholders per share | $ | 0.006 | $ | 0.021 | $ | 0.004 | $ | 0.031 | ||||
| Cash flow from operations (1)(2)(3) | $ | 11,719 | $ | 14,862 | $ | 18,334 | $ | 23,992 | ||||
| Cash flow from operations per share (1)(2)(3) | $ | 0.039 | $ | 0.049 | $ | 0.061 | $ | 0.080 | ||||
| Debt net of cash outstanding before deferred financing charges | $ | 147,139 | $ | 156,094 | $ | 147,139 | $ | 156,094 | ||||
| Dividends paid (4) | $ | 1,803 | - | $ | 1,803 | $ | 2,770 | |||||
| Dividends paid per share (4) | $ | 0.006 | - | $ | 0.006 | $ | 0.009 | |||||
| Weighted average shares outstanding, net | 300,425,031 | 300,425,031 | 300,425,031 | 300,425,031 | ||||||||
Notes:
- Refer to "Non-IFRS Measures" section of the financial statements.
- 2013 excludes $1.8 million of restructuring expense and $1.0 million of transaction and transition costs.
- For non-recurring items excluded in the prior period, refer to previously reported financial statements.
- Dividends in 2013 total $0.012 per share paid quarterly, dividends in 2012 total $0.018 per share paid semi-annually, quarterly dividends totalling $1.8 million or $0.006 per share were declared in May 2013 and paid on July 5, 2013.
- These results are presented on an adjusted basis to include the Company's share of the results of its joint ventures, as management bases its operating decisions and performance evaluation on the adjusted results.
Highlights
- For the three months ended June 30, 2013, GVIC's adjusted consolidated revenue decreased 2.5% to $89.1 million from $91.4 million for the same period in the prior year;
- Adjusted consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) decreased by 21.5% to $13.5 million from $17.2 million for the same period in the prior year;
- Adjusted cash flow from operations (before changes in non-cash operating accounts and non-recurring items) decreased 21.1% to $11.7 million;
- Adjusted net income attributable to common shareholders before non-recurring items was $4.0 million compared to $7.0 million for the same period in the prior year;
- Adjusted EBITDA per share decreased 21.5% to $0.045 from $0.057 for the period compared to the same period in the prior year and net income attributable to common shareholders before non-recurring items per share decreased to $0.013 from $0.023 for the same period in the prior year;
- Adjusted cash flow from operations (before changes in non-cash operating accounts and non-recurring items) per share decreased 21.1% to $0.039 per share from $0.049 for the same period in the prior year;
- GVIC became a 50% partner in a new venture, Weather INnovations ("WIN") Consulting - created as the result of merging WeatherFarm (a former Canadian Wheat Board asset acquired by GVIC in late 2012) and Weather INnovations Inc. (an agricultural meteorology information business), of which GVIC acquired an interest in on April 5, 2013;
- Business information EBITDA reached 56% of GVIC's total EBITDA;
- Approximately 45% of GVIC's business information EBITDA now comes from rich information digital data products which continue to grow with high levels of profitability; and
- During the quarter, $4.0 million of cash was realized through the sale of redundant real estate assets and the proceeds were used to pay down debt.
Review of Operations
GVIC Communications Corp. ("GVIC" or the "Company") continued to generate strong revenue, profit and cash flow from operations through its diversified base of information communications businesses. General weakness in the Canadian economy, however, has impacted year-over-year performance of many of the Company's assets, particularly those in urban community media markets.
As a result, GVIC's senior management has undertaken a comprehensive review of the Company's operations. In order to provide a stronger financial position with which to operate the business going forward, and to better take advantage of growth opportunities, management will initiate a series of cost reduction, profitability improvement, redundant asset sale and other initiatives.
Notwithstanding prevailing economic conditions, many of the Company's business information operations (which includes business and professional and trade information) continue to grow and provide attractive opportunities for future growth in both existing and new verticals through multi-platform offerings, including rich information products and solutions.
Business information operations now represent approximately 56% of GVIC's EBITDA, of which approximately 45.0% comes from rich information digital data products which continue to grow with high levels of profitability.
GVIC's community media operations offer a broad coverage of Western Canadian local markets; and continue to offer a strong value proposition through local information and marketing channel utility. The soft economic conditions that adversely affected national advertising revenues in the first quarter continued in the second. This impact is particularly true of community operations in more urban markets such as the Lower Mainland of British Columbia, where both print and digital competition compounds the impact of a weaker economy. The Company's smaller rural community media markets - largely spread across the Prairies - continue to enjoy stable performances.
The media industry, as a whole, continues to pursue new "business models" intended to manage the future value of content and marketing solutions against a backdrop of declining traditional advertising. GVIC is well advanced in this respect, with internal models structured to balance those losses with innovative customer solutions - designed to be resilient to the peaks and valleys associated with economic cycles.
Given the significant growth opportunities available in information services, the Company's strategy is to invest cash flow generated from the community media operations and the business information operations in both operational opportunities and acquisitions. In particular, the Company intends to increase capital allocated to business information acquisitions and organic growth opportunities.
Sales Performance
Business Information
Many of GVIC's business information operations continued to deliver growth, despite prevailing economic conditions, with revenue increases generated across a wide variety of verticals - driven by a diverse variety of product and information innovations. While in some verticals this growth was slower than prior year, the various products and services still performed well in those sectors. Overall, however, general economic conditions have resulted in decreased customer activity in many verticals, which in turn, results in decreased marketing and sales volumes. This is particularly true of sectors that are most exposed to economic volatility.
A variety of growth initiatives are being pursued and are generating strong sales results, especially those associated with sectors of the economy which are experiencing relatively stable conditions in a pan-Canadian context. This is a result of new product innovation, ongoing development of existing products, focused sales efforts, and a stronger inter- divisional collaboration framework created between GVIC's various operations.
In particular, GVIC's business information operations enjoyed success in the energy, agricultural, environmental risk, environmental compliance networks, medical and financial information sectors as a result of targeted initiatives designed to align with growth areas within those sectors. GVIC's business information portfolio contains many brands that have decades of service in their respective sectors. The intrinsic equity and market positions associated with these brands represent a key competitive advantage as the products evolve and extend.
In addition to core business information print and digital sales, management is focused on strategies designed to offer customers increasingly richer value propositions. These include multi-platform solutions - with a key focus on mobile offerings - designed to integrate more seamlessly with customer decision-making processes, thus ensuring heightened levels of decision dependency on specific information tools. Such dependence is enhanced through a focus on effective pricing and targeted timing. Consequently, these information tools are increasingly integrated in customer decision- making and as a result sales efficiency, renewal and retention improves. This includes a focus on advertising solutions that are underpinned by a strong economic development framework. As a result, non-traditional customers are turning to GVIC on that basis. Overall, this strategy is intended to produce products and services that are more resilient in times of economic stress and are well positioned for long-term revenue growth.
Key efforts are under way to distinguish different types of digital content, advertising and subscriptions based on research designed to highlight individual industry sector needs. Premium subscription and related products are being enhanced and developed with a particular focus on essential content, data, search, interpretation, contextualization and analytics. A consistent focus on various ways of enriching content results in improved rates for advertising positioned alongside rich information. The Canadian Oilfield Services and Supply Database, for example, is evolving strategically away from its roots as a phone book style directory by integrating its services more firmly in the oilfield procurement process - and is growing its revenues as a result. This transactional utility creates enriched advertising opportunities by juxtaposing clients' marketing messages at key points within the database.
Digital revenues now represent more than a quarter of GVIC's business information revenues and are growing steadily. Significant focus and related investment will continue to be made to enhance GVIC's digital business information verticals, through both organic development and new business acquisitions. These acquisitions will be targeted to expand the markets that GVIC covers, extend the breadth of information products and marketing solutions provided, and to enrich GVIC's digital media staff, technology and other relevant resources - all focused on consistently enhancing customer decision dependence on the Company's products.
As stated, approximately 45.0% of GVIC's business information EBITDA now comes from rich information digital data products which continue to grow with high levels of profitability.
Overall, the business information operations and various markets offer attractive opportunities for growth with high levels of profitability - particularly when aligned with GVIC's leading position in key sectors focused on the natural resources economy. An integration framework which permits management teams in various verticals to remain entrepreneurial and market-focused will enhance the Company's ability to service its key customers with more integrated solutions.
Community Media
Through the second quarter, GVIC's community media operations continued to experience weaker revenue performance in a number of markets, primarily the result of softer national advertising - itself the direct result of a generally weak overall economy. The B.C. markets in particular were affected by weaker economic conditions in Victoria, the Lower Mainland and a variety of Vancouver Island and Northern Interior markets. National advertising revenues were weaker in most markets, which appear to be the result of ongoing cautiousness due to prevailing economic conditions, as financial and government revenues have been significantly lower.
Digital competition also affected print spending levels, although this trend was greater in the larger urban markets than in the smaller local markets. Local advertising revenues were lower in both the existing markets where GVIC has operated, and some of the Lower Mainland and Vancouver Island markets acquired from Postmedia. However, the Company's community media assets in the Prairies continued to experience reasonable stability as a result of being in geographically isolated markets.
As a result of the softer conditions, management has undertaken a detailed overview of all markets to ensure maximization of cost control measures, with a focus on integrated initiatives to maximize productivity and capacity.
Balanced against cost control initiatives, digital investments are also being made to exploit revenue opportunities across GVIC's markets, with a specific focus on content delivery and advertising effectiveness. In this quarter, GVIC created a new social commerce partnership, International Social Shopper Limited Partnership ("Social Shopper"), to collaborate with GVIC's community media properties to build out an e-commerce platform that connects local businesses with their clients through local, social and mobile tools. The partnership builds on the proximity GVIC's community assets have to their respective retail communities.
While economic and market challenges have affected the community media operations, management believes that these businesses remain strong and will continue to generate solid cash flow given the nature of the markets in which GVIC operates - particularly within the more robust micro-economies of Western Canada. This cash flow can be used to fund growth through both internal investment and acquisition of digital business information and community media assets, as well as debt repayments.
GVIC's small market community media operations offer a unique selling proposition and competitive advantage through the local information that they provide - of which they are a primary source - and the primary advertising and marketing channels they offer. The value of community content is provided to readers in print and online, by tablet and smartphone platforms. As described above, a number of new digital sales products and strategies have been introduced, and new digital sales and product staff are being hired and technology investments are being made to drive these growth initiatives. Given that the demand for local community information is expected to exist for the long term, GVIC expects to be able to monetize the information and marketing value. As 85% of GVIC's local newspaper distribution is free, this also provides for a more durable reach of readership for advertisers over time wherein total market coverage can always be provided. The attributes of these community media operations are significantly different and stronger than larger metropolitan paid daily newspapers, which have been reflected in the financial performance of GVIC's community media group. An important advantage is that being local often means being integrally rooted in the fabric of a community and GVIC's community media management and staff work assiduously to remain tied to the rhythms of the markets they serve.
Operational Performance
As stated, for the three months ended June 30, 2013, adjusted consolidated EBITDA decreased $3.7 million or 21.5% to $13.5 million compared to $17.2 million in the prior year. The economic environment and related softness resulted in a lower EBITDA margin from the operations acquired in 2011 and the community media operations in general.
GVIC's adjusted consolidated EBITDA margin decreased to 15.2% for the three months ended June 30, 2013 from 18.8% for same period last year as a result of softness in both community media and some business information operations. Management will seek to improve these margins and profit performance through improved print and digital sales effectiveness, cost efficiency and other initiatives.
In accordance with IFRS, GVIC's EBITDA was $11.2 million for the three months ended June 30, 2013, a decrease of $2.9 million or 20.8% and its EBITDA margin decreased to 13.8% from 16.8% for the same period in the prior year. As discussed above, the economic environment and related softness resulted in a lower same-store revenue and EBITDA in certain trade information businesses and in the community media operations.
As stated, significant cost reduction and profitability improvement measures are being implemented to offset softer revenues.
These measures are being implemented consistent with management's strategy of maintaining strong product and editorial quality while reducing operating costs where possible through initiatives that do not impact quality, sales capacity or market and competitive positions. Management is being careful to maintain appropriate levels of resources in staff and technology as well as business development in order to facilitate long-term revenue growth.
EBITDA was also impacted by increased operating infrastructure investment made in digital media management, staff, information technology and related resources, as well as other content and quality related areas. GVIC's community media digital revenue continues to grow as a result, as does GVIC's business digital revenue. These investments were made consistent with GVIC's complementary media platform and product strategy and business information strategies.
The complementary media platform and product strategy address both the risks that digital media represents to the traditional print platform and the opportunities that digital media offers in GVIC's local community and business information markets. The strategy's premise is that customer utility and value should drive platform utilization and product design and functionality. Online, mobile, tablet and other information delivery devices will be fully utilized, while print content and design quality will also be fully maintained. While digital platforms offer many attractive new opportunities, print platforms continue to offer effective utility to both readers and advertisers. Maintaining strong print products also maintains strong brand image and awareness, which increases the likelihood of success online. Studies of time spent across media platforms and reader satisfaction support the complementary platform and product strategy. Management expects that customer utility will vary over time and will be affected by what GVIC and other media providers can creatively provide. Management believes the complementary platform and product strategy will be prudent for the foreseeable future, and will maximize revenue and profit generation.
As indicated, the business information strategies are focused on increasing the value provided to customers through richer content, data and analytic value and heightening customer decision dependence of GVIC's products and services. This dependence moves GVIC's products and services further up the value ladder, with the higher revenue, profitability and recurring cash flow that this value proposition provides.
Acquisitions
GVIC continued its strategy of acquiring businesses that provide high-value data and information by becoming a 49% partner in a new venture, Weather INnovations Consulting Limited Partnership ("WIN") - created as the result of merging WeatherFarm (a former Canadian Wheat Board asset acquired by GVIC in late 2012) and Weather INnovations Inc. (an agricultural meteorology business), of which Glacier acquired an interest during the quarter. The partnership blends two key weather information provision systems that enable farmers and other crop producers to make near real-time decisions for operations such as seeding, spraying and harvesting, and provide valuable information for a variety of businesses and institutions involved with the agriculture sector. As well, the partnership will provide predictive modeling tools to manage disease and pest threats. The new business will operate closely with GVIC's existing agriculture portfolio of products and services.
Financial Position
On an adjusted basis to include the Company's share of its joint ventures, the Company's consolidated debt net of cash outstanding before deferred financing charges and other expenses was 3.1x trailing 12 months EBITDA as at June 30, 2013.
The Company (excluding its joint ventures) repaid $4.4 million of debt, of which $4.0 million was generated from the sale of redundant real estate assets, during the three months ended June 30, 2013. GVIC's consolidated debt net of cash outstanding before deferred financing charges was $134.1 million as at June 30, 2013.
Additional redundant asset sales are being undertaken to further reduce debt levels. As stated, significant cost reduction and other initiatives are also being undertaken to reduce leverage.
GVIC invested $7.6 million of capital expenditures (excluding its joint ventures) during the period primarily relating to the purchase of a new building ($6.2 million), new printing equipment, new office space and software. The investment capital expenditures are being made to generate direct revenue and cash flow improvements and payback consistent with GVIC's targeted return on investment, as well as quality improvements and other benefits.
Change in Accounting Policy
As a result of a change in IFRS accounting policies effective January 1, 2013, the Company is now required to account for its joint venture operations under the equity method. Previously, the Company's joint venture operations were accounted for using proportionate consolidation. As a result of the change in accounting, the Company no longer includes the revenues, expenses, assets and liabilities of its share of these operations in the Company's results. The Company now carries its interest as a net investment on its balance sheet and includes the net results from these operations in its statement of operations.
Despite this accounting change, management believes that including its share of revenues and expenses in the Company's results (consistent with its prior accounting treatment) provides an important basis for assessing the overall operations of the Company. The table below adjusts the Company's reported results under IFRS to include the revenues and expenses of its joint venture operations, consistent with its historical presentation. Management bases its operating decisions and performance evaluation on the adjusted results.
| Three months ended June 30, 2013 (4) | Three months ended June 30, 2012 (4) | ||||||||||||||||
| thousands of dollars except share and per share amounts | Per IFRS | Adjustment (4) | Adjusted | Per IFRS | Adjustment (4) | Adjusted | |||||||||||
| Revenue | $ | 80,680 | $ | 8,390 | $ | 89,070 | $ | 83,797 | $ | 7,591 | $ | 91,388 | |||||
| EBITDA (1) | $ | 11,171 | $ | 2,344 | $ | 13,515 | $ | 14,111 | $ | 3,101 | $ | 17,212 | |||||
| EBITDA margin (1) | 13.8 | % | 15.2 | % | 16.8 | % | 18.8 | % | |||||||||
| EBITDA per share (1) | $ | 0.037 | $ | 0.045 | $ | 0.047 | $ | 0.057 | |||||||||
| Net income attributable to common shareholders | $ | 1,071 | $ | 818 | $ | 1,889 | $ | 6,536 | $ | (147 | ) | $ | 6,389 | ||||
| Net income attributable to common shareholders per share | $ | 0.004 | $ | 0.006 | $ | 0.022 | $ | 0.021 | |||||||||
| Cash flow from operations (1)(2)(3) | $ | 9,628 | $ | 2,091 | $ | 11,719 | $ | 12,413 | $ | 2,449 | $ | 14,862 | |||||
| Cash flow from operations per share (1)(2)(3) | $ | 0.032 | $ | 0.039 | $ | 0.041 | $ | 0.049 | |||||||||
| Debt net of cash outstanding before deferred financing charges | $ | 134,060 | $ | 13,079 | $ | 147,139 | $ | 150,886 | $ | 5,208 | $ | 156,094 | |||||
| Weighted average shares outstanding, net | 300,425,031 | 300,425,031 | 300,425,031 | 300,425,031 | |||||||||||||
- Refer to "Non-IFRS Measures" section for calculation of non-IFRS measures used in this table.
- 2013 excludes $0.3 million of restructuring expense and $0.5 million of transaction and transition costs.
- For non-recurring items excluded in the prior period, refer to previously reported financial statements.
- Adjustment to include the Company's share of revenues, expenses and cash flows from its joint venture operations
For the three months ended June 30, 2013, excluding its share of revenues and expense from its joint ventures and in accordance with IFRS, revenues decreased 3.7% to $80.7 million from $83.8 million for the same period in the year prior. Cash flow from operations (before changes in non-cash operating accounts and non-recurring items) decreased 22.4% to $9.6 million, and earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 20.8% to $11.2 million compared to the same period in the year prior. Net income attributable to common shareholders decreased by $5.5 million to $1.1 million.
Outlook and Summary
While economic conditions have impacted some community media operations and some business information verticals, and digital competition has affected the community media revenues, management expects that growth will continue in GVIC's business information operations, as well as a variety of community media markets where local market conditions are stronger.
While the print advertising business is maturing, it is important to recognize that the softer economy is playing a significant role in dampening revenues, and a strengthening of the economy should result in improved revenues at the margin. In this regard, management will continue to closely monitor economic conditions in various markets and verticals to ensure appropriate decisions are made that maintain long-term viability.
Management will focus in the short-term on paying down debt, reducing costs and improving profitability, enhancing existing operations, and improving value for shareholders. The profitability enhancement and asset sale initiatives outlined are intended to significantly improve GVIC's financial position as indicated and place the Company in a better position with which to take advantage of growth opportunities.
As indicated, significant focus will continue to be made to enhance GVIC's business information verticals, through both organic development and acquisition. Significant product and market progress is being achieved with these efforts through a wide variety of initiatives as described. Nearly 56% of GVIC's profitability now comes from these operations, and this percentage is expected to grow as continued development is achieved and acquisitions are completed. These acquisitions will be targeted to expand markets that GVIC covers; expand the breadth of information products and marketing solutions; and expand GVIC's digital media staff, technology and related resources.
Once leverage is reduced to moderate levels, management will seek an ongoing balance of maintaining debt at moderate levels and delivering growth through both operations and acquisitions. Specifically, management will time investment in the acquisition opportunities to allow cash flow from operations to be used to pay down the increased borrowings incurred in the fourth quarter of 2011 and align financial position and risk with current economic and industry conditions.
Shares in GVIC are traded on the Toronto Stock Exchange under the symbol GCT.
About the Company: GVIC Communications Corp. is an information communications company focused on the provision of primary and essential information and related services through print, electronic and online media. GVIC is pursuing this strategy through its core businesses: the local newspaper, trade information and business and professional information markets.
Financial Measures
To supplement the consolidated financial statements presented in accordance with International Financial Reporting Standards (IFRS), GVIC uses certain non-IFRS measures that may be different from the performance measures used by other companies. These non-IFRS measures include cash flow from operations (before changes in non-cash operating accounts and non-recurring items), net income attributable to common shareholders before non-recurring items and earnings before interest, taxes, depreciation and amortization (EBITDA), which are not alternatives to IFRS financial measures. Management focuses on operating cash flow per share as the primary measure of operating profitability, free cash flow and value. EBITDA per share is also an important measure as the Company has low ongoing capital expenditures and depreciation and amortization largely relates to acquisition goodwill and copyrights and does not represent a corresponding sustaining capital expense. These non -IFRS measures do not have any standardized meanings prescribed by IFRS and accordingly they are unlikely to be comparable to similar measures presented by other issuers.
Forward Looking Statements
This news release contains forward-looking statements that relate to, among other things, the Company's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates. These forward-looking statements include, among other things, statements under the headings "Review of Operations, "Sales Performance", "Operational Performance", "Acquisitions", "Financial Position" and "Outlook and Summary" and statements relating to the Company's expectations regarding revenues, expenses, cash flows and future profitability, including its expectations that growth will continue in GVIC's business segments, its expectations as to acquisitions and organic revenue and profitability growth, that cost savings will be realized, and that annual dividends are expected to be declared. These forward looking statements are based on certain assumptions, including continued economic growth and recovery and the realization of cost savings, and are subject to risks, uncertainties and other factors which may cause results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, and undue reliance should not be placed on such statements.
Important factors that could cause actual results to differ materially from these expectations are listed in the Company's An nual Information Form under the heading "Risk Factors" and in the Company's MD&A under the heading "Business Environment and Risks", many of which are out of the Company's control. These factors include, but are not limited to, the ability of the Co mpany to sell advertising and subscriptions related to its publications, foreign exchange rate fluctuations, the seasonal and cyclical nature of the agricultural industry, discontinuation of the Department of Canadian Heritage's Canada Periodical Fund, general market conditions in both Canada and the United States, changes in the prices of purchased supplies including newsprint, the effects of competition in the Company's markets, dependence on key personnel, integration of newly acquired businesses, technological changes, tax risk and financing and debt service risk.
The forward-looking statements made in this news release relate only to events or information as of the date on which the statements are made. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward- looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
Contact Information:
Mr. Orest Smysnuik
Chief Financial Officer
604-708-3264